The Leading Contender Emerges

Kevin Hassett, currently running the National Economic Council, has become the overwhelming favorite to take over the Federal Reserve. According to prediction market data from Kalshi as of December 2, he's sitting at an 80% probability of becoming the next Fed Chair. That's not just speculation anymore—President Donald Trump mentioned Hassett on Tuesday as a "potential future Fed Chair," adding that his candidate list is "down to one."

If appointed, Hassett would assume Powell's chair in May 2026 when the current term expires. Jerome Powell is expected to resign his remaining Governor position shortly after, following the pattern set by previous chairs. That would hand the administration another vacancy on the Board of Governors, giving them even more influence over the committee's composition.

Supply-Side Philosophy Versus Powell's Playbook

Hassett represents a fundamental departure from the Powell era. He's a supply-side economist who believes the inflation battle is essentially over and that keeping rates restrictive is just dragging down the economy for no good reason. Throughout 2024 and 2025, his public comments have consistently pushed for lower interest rates.

In multiple interviews, Hassett said he'd favor immediate cuts, aligning with Trump's view that borrowing costs should drop significantly. He's even suggested that if the Fed doesn't cut rates in December, it would reveal partisan motivations rather than sound economic reasoning. That's a pointed critique of Powell's approach to data-dependent policymaking.

Kevin Warsh and the Possibility of Structural Change

Former Fed Governor Kevin Warsh remains Hassett's strongest competitor for the top job, though market watchers expect him to join the Board even if he doesn't get the chair. Warsh has been openly critical of the Fed's current structure and has called for a new Treasury-Fed Accord that would reshape how the institution operates.

Warsh argues that rapid productivity gains from artificial intelligence are inherently disinflationary. That view reinforces Hassett's position that restrictive rates represent a policy error. Together, they'd form a formidable dovish bloc.

Picture a leadership team centered on Hassett as Chair, Warsh as a key Governor, plus existing Governors Chris Waller and Michelle Bowman. That would create one of the most dovish voting blocs the Fed has seen in decades. The other 10 FOMC members remain persuadable, meaning Hassett's challenge wouldn't be wielding assumed authority but actually forging consensus among a group that could easily fracture.

Why Powell's Exit Timing Could Move Markets

Markets are already gaming out a four-stage reaction to this transition. First, Hassett's likely nomination in December or January should produce immediate bullishness in risk assets. That's the easy part.

But then things get tricky. If Powell doesn't announce his resignation within several weeks of the nomination, investors may grow uneasy. His continued presence could block additional appointments and create an uncomfortable period of dual authority. Once Powell confirms his departure, expect another surge in risk sentiment as the path clears for a complete leadership overhaul.

The final stage comes ahead of the first Hassett-led FOMC meeting in June 2026, when traders will scrutinize every word for clues about how unified the new committee has become. A fractured committee would add volatility and raise serious questions about institutional stability. A unified committee would give Hassett the mandate to execute one of the most dramatic rate-cutting cycles of the modern era.

Markets Haven't Priced This In Yet

Here's where it gets interesting for investors. The December 2026 interest rate projection currently sits near 3.02%. But Hassett's public statements point to an appropriate policy rate between 2% and 2.5% once disinflation takes hold. That's a material difference.

Analysts say the market hasn't fully absorbed this potential shift. The Fed's median dot plot is actually misleading because it includes non-voting participants. When you look at public statements from voting members, they appear more dovish. Remove the outgoing policymakers and substitute Hassett and Warsh, and you get a lower blended projection of about 2.6%.

There's another wrinkle here. The Fed's Tealbook, which drives much of the committee's analysis, is produced by a large research staff with Keynesian leanings. Installing a supply-side economist to lead that division could shift inflation projections lower and give the full committee more confidence to vote for aggressive cuts. That's not just a personnel change—it's a potential transformation in economic modeling.

What This Means Across Asset Classes

A Hassett-led Fed would try to engineer recession-level interest rates while assuming strong growth from productivity gains. That's an unusual combination, and it would likely push two-year yields sharply lower even as ten-year yields remain elevated due to higher nominal growth expectations.

Equity markets would probably respond with broader multiple expansion, particularly in growth and technology stocks that benefit most from lower discount rates. Gold could outperform Treasuries if the market interprets the shift as a move away from strict inflation targeting.

Bitcoin (BTC), which has struggled to respond to macro easing signals in recent months, could benefit from looser monetary policy combined with the deregulatory tailwinds that have characterized Trump's approach to crypto. It's one of those rare moments where policy, market structure, and political preferences might all align.

The Question That Will Define This Transition

Investors will focus not just on Hassett's appointment but on whether he can actually secure majorities inside a divided FOMC. The stakes extend far beyond the next two meetings. Markets are preparing for a structural change in how the Federal Reserve interprets inflation, productivity, and growth.

If Hassett can build consensus, we're looking at a dramatic repricing of interest rate expectations and potentially one of the most aggressive easing cycles in modern Fed history. If he can't, we're looking at a period of institutional instability that could add significant volatility to markets still trying to navigate the post-pandemic economy.

Either way, the Powell era is ending. What comes next could reshape monetary policy for years to come.