Kevin Hassett’s Rate Cut Call Amid Shutdown Data Shock Sparks SPY Optimism Ahead of Fed Decision

This analysis is based on Kevin Hassett’s December 5, 2025, interview on Fox Business’ “Mornings with Maria” [3]. Hassett, a former Trump administration economic advisor and leading candidate to replace Jerome Powell as Fed Chair (term ending May 2026), called for the Fed to “cut rates again” due to a “shutdown data shock”—delayed/canceled economic data releases (including the Fed’s preferred PCE inflation gauge) caused by the ongoing U.S. government shutdown [3][4].

Markets had already priced a high probability of a rate cut before Hassett’s comments, with Morgan Stanley recently shifting its rate-cut prediction back to December 2025 from January 2026 [4]. Hassett’s statements reinforced this expectation, contributing to the 0.37% rise in SPY on December 5 [0]. Bond investors have expressed concerns that Hassett, if appointed Fed Chair, could pursue aggressive rate cuts aligned with Trump’s policy preferences, potentially pressuring the U.S. dollar and disrupting bond markets [1][2].

1. Political-Monetary Policy Intersection
   : Hassett’s potential Fed chair appointment highlights growing concerns about political influence on monetary policy, a factor that could shape long-term inflation expectations and bond yields [1][2].
2. Data Uncertainty and Market Confidence
   : Despite the shutdown’s “data shock” and incomplete economic picture, market confidence in a December rate cut remains strong (90-95% probability), suggesting private-sector data continues to support dovish Fed action [0][4].
3. Immediate vs. Long-Term Market Reactions
   : The 0.37% rise in SPY reflects short-term optimism about rate cuts, while bond market concerns about Hassett’s potential appointment indicate longer-term uncertainty about Fed independence and monetary policy direction [1][2].

• Risks
  :
  • Potential political interference in monetary policy if Hassett becomes Fed Chair, which could disrupt inflation targeting and bond market stability [1][2].
  • Data gaps from the shutdown may lead to a less informed Fed decision, increasing post-announcement market volatility [4].
• Opportunities
  :
  • A Fed rate cut could boost equity markets (like SPY) by reducing borrowing costs and increasing corporate profitability [0].
  • Lower rates may weaken the U.S. dollar, benefiting export-oriented sectors [1].

• Fed Decision
  : The Fed is scheduled to announce its rate decision next week (December 2025), with a 90-95% market-implied probability of a 25bps cut [0][1][4].
• Government Shutdown Impact
  : The shutdown has delayed critical data releases, including the PCE inflation gauge, creating data gaps for policymakers [4].
• Kevin Hassett’s Role
  : He is a leading Fed chair candidate expected to push for aggressive rate cuts; bond investors have raised concerns about political interference [1][2].
• Market Reaction
  : SPY closed 0.37% higher on December 5, reflecting rate cut optimism [0].

1. Full transcript of Hassett’s interview, including specific details of the “shutdown data shock” [3].
2. Exact scope of delayed/canceled economic data releases [4].
3. The Fed’s official response to Hassett’s rate-cut call [0].