(Dec 4): Kevin Hassett may not have the ability to deliver the rapid pace of interest rate cuts US President Donald Trump would like, even if he is approved as the next Federal Reserve (Fed) chair, said Gregory Peters, a co-chief investment officer of PGIM Fixed Income.
Peters made the remarks amid rising talk that Hassett, the White House National Economic Council director, may ease monetary policy aggressively to please Trump if he is picked to run the Fed. But the PGIM fund manager suggested that — since Fed rate decisions are ultimately decided by committee — Hassett won’t have the power to deliver on his own.
“Does he have the credibility within the committee to drive consensus?” said Peters, who is also a member of the Treasury Borrowing Advisory Committee, in an interview with Bloomberg TV. “We don’t know that answer. I don’t think he has that credibility. I think that’s what the bond market is telling you.”
Peters’ remarks were in response to a Financial Times report that bond investors, including those on the borrowing advisory committee, have voiced concerns to the US Treasury about Hassett’s potential appointment as the Fed chief.
His comments come as bond traders and big macro fund managers game out the impact of Trump’s shake-up of the Fed, where even hints of policy changes can send ripples throughout global markets. The rising chance that Trump will appoint a dovish Fed chair follows his months of unprecedented attacks on the institution, including insults aimed at Powell and an attempt to oust board member Lisa Cook.
Hassett is widely considered a supporter of Trump’s preference for lower rates. Trump said this week the race for the central bank chief job is “down to one” while referring to Hassett as a “potential Fed chair”.
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Hassett, while remaining coy about his chances of getting the job, rebuffed criticisms this week, citing a strong Treasury auction as a sign the market hasn’t been scared by the rumours he will take the job. But some traders have piled into bets that the pace of rate cuts is set to pick up, with such positions building after Hassett emerged as the front runner.
The rising chance of Hassett getting the job has fuelled questions about the independence of the Fed, which Peters said remains a major concern for investors.
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“The markets are focused on what happens next,” said Peters. “And what happens next is the new Fed chair, the new composition and quite candidly the meddling of the administration in Fed affairs.”
Still, yields on Treasuries were little changed during Asian trading on Thursday. Those on benchmark 10-year Treasuries held at 4.08% in Asian morning trading Thursday, while yields on policy-sensitive two-year notes edged up one basis point to 3.50%.
Investors are “worried about Fed independence slash credibility and so risk premium, term premium is being built into the curve not only in the US but across all sovereign bond markets”, said Peters. “It depends where you are — the bond market in the back end is still quite fragile.”
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