Analysis of 2025 Federal Reserve Chair Finalists' Rate Cut Stances and Policy Differences

This analysis synthesizes findings from the December 18, 2025 Reuters report [1] on three finalists for Federal Reserve Chair—Kevin Hassett, Christopher Waller, and Kevin Warsh—who have been interviewed by President Donald Trump to replace Jerome Powell in May 2026. A key unifying factor among the candidates is their support for interest rate cuts in 2025, aligning with the Trump administration’s critique of current Fed rates. However, their policy prescriptions diverge significantly in three critical areas: rate cut magnitude, balance sheet policy, and Fed governance. Hassett advocates aggressive cuts, Waller favors 50-100 bps reductions from neutral, and Warsh focuses on cuts to make mortgages affordable. On balance sheet policy, Hassett supports a review, Waller views the current size as appropriate, and Warsh opposes expansion. In Fed governance, Hassett calls for addressing partisanship and reviewing regional presidents, Waller emphasizes limiting mission creep, and Warsh opposes Fed involvement in climate change and inclusion.

1. AI Productivity Alignment
   : Despite policy differences, all three candidates attribute recent strong economic growth and moderated inflation to AI-driven productivity gains—an uncommon area of consensus that could shape future policy assumptions about growth-inflation dynamics [1].
2. Market Preference for Independence
   : Christopher Waller, a current Fed Governor, emerges as the market’s favored candidate due to his perceived commitment to Fed independence, which investors value for predictable monetary policy [1].
3. Fed Governance Debates
   : Calls for reform from Hassett (addressing partisanship, reviewing regional presidents) and Warsh (opposing mission creep into climate change and inclusion) highlight growing political pressure to narrow the Fed’s focus beyond its traditional dual mandate of price stability and full employment [1].

• Risks
  :
  • Erosion of Fed Independence: Candidates like Hassett and Warsh have made comments that raise concerns about potential political influence over the central bank, which could undermine investor confidence and long-term economic stability [1].
  • Market Volatility: If a less market-favored candidate (e.g., Hassett or Warsh) is selected, short-term market volatility could increase as investors adjust to uncertain policy paths.
• Opportunities
  :
  • Stimulated Economic Growth: Rate cuts could reduce borrowing costs for businesses and consumers, boosting investment, spending, and economic expansion.
  • Focused Fed Mandate: All candidates’ opposition to mission creep may refocus the Fed on its core responsibilities, potentially enhancing policy effectiveness.

This report synthesizes critical details about the 2025 Fed Chair finalists, their policy stances, and potential market impacts. The three candidates—Kevin Hassett (White House economic adviser), Christopher Waller (current Fed Governor), and Kevin Warsh (former Fed Governor)—share support for 2025 interest rate cuts but differ on cut magnitude (aggressive vs. moderate), balance sheet policy (review vs. status quo vs. oppose expansion), and Fed governance (partisanship reform vs. independence vs. narrow mandate). Market preferences lean toward Waller for his perceived independence, while the candidates’ unanimous focus on AI productivity gains provides a common economic backdrop for future policy decisions. The selection process occurs amid moderating inflation near the Fed’s 2% target and strong economic growth [1].