Market Analysis: Dovish Fed Cut Expectations and Kevin Hassett’s Potential Impact

This analysis is based on a December 5, 2025, Bloomberg Television segment [1] that examined two key market themes: dovish investor expectations ahead of the U.S. Federal Reserve (Fed)’s December 9–10 policy meeting and the potential influence of Kevin Hassett—President Trump’s expected nominee for the next Fed Chair—on monetary policy.

On December 4, 2025, U.S. major indices recorded marginal declines (S&P 500: -0.14%, NASDAQ Composite: -0.09%, Dow Jones Industrial Average: -0.08%) [0], likely reflecting mild profit-taking after recent gains driven by mounting expectations of a Fed rate cut. Markets priced in an 85% probability of a 25-basis-point (bps) rate cut at the December meeting [4], with institutions like Bank of America (BofA) and Goldman Sachs revising their forecasts to anticipate this move [2].

Kevin Hassett, a former U.S. National Economic Council Director, has publicly advocated for aggressive rate cuts—stating he would “cut rates right now” if he were Fed Chair [5]. His comments, combined with President Trump’s push for rates as low as 1%, have amplified market dovishness [5]. However, market analysts, including those from PGIM, have expressed skepticism about Hassett’s ability to deliver on these policy promises, which could introduce volatility if he is confirmed as Fed Chair in 2026 [3].

1. Political-Monetary Policy Intersection
   : The potential appointment of Hassett, a candidate with explicit ties to the Trump administration, highlights growing concerns about political interference in the Fed’s independence. Such interference could erode market confidence in the central bank’s ability to make data-driven policy decisions long-term [5].
2. Expectations vs. Reality Risk
   : The high market probability (85%) of a December rate cut creates a “disappointment risk”—if the Fed forgoes the cut or provides a less dovish outlook, markets could experience sharp sell-offs [4].
3. 2026 Policy Trajectory Focus
   : If the Fed delivers the expected December cut, market attention will quickly shift to the 2026 rate path. BofA forecasts two additional 25-bps cuts in June and July 2026, indicating that rate expectations will remain a key market driver [2].

• Fed Meeting Disappointment
  : With 85% of rate cut expectations priced in, a decision to hold rates steady could trigger significant market volatility, particularly in equities and fixed income [4].
• Hassett Confirmation Volatility
  : Market skepticism about Hassett’s policy credibility may lead to heightened volatility if he is nominated and confirmed as Fed Chair [3].
• Political Uncertainty
  : Increased White House influence on the Fed could undermine central bank independence, introducing long-term risks to market stability [5].
• Macroeconomic Data Impact
  : Upcoming jobs (December 16) and inflation (December 18) reports may reshape 2026 rate path expectations, even after the December Fed meeting [2].

• Short-Term Market Support
  : A Fed rate cut in December, as expected, could provide short-term support to equity markets, especially growth sectors sensitive to interest rates. However, this depends on the Fed’s accompanying guidance about future policy [0][2].

This analysis synthesizes the following critical data and insights to support decision-making:

• Major U.S. indices saw marginal declines on December 4, 2025, amid profit-taking [0].
• Markets assign an 85% probability to a 25-bps Fed rate cut at the December 9–10 meeting [4].
• Kevin Hassett, Trump’s expected next Fed Chair, advocates for aggressive rate cuts, amplifying market dovishness [5].
• Market analysts express skepticism about Hassett’s ability to deliver on policy promises, posing future volatility risks [3].
• A Fed rate cut could support short-term market performance, but disappointment risks are elevated due to high priced-in expectations [4].