Gregory Peters, co-chief investment officer at PGIM Fixed Income, stated that Kevin Hassett might not be capable of implementing the swift interest rate reductions that US President Donald Trump desires, even if Hassett secures confirmation as the subsequent Federal Reserve Chair.
TL;DR
- Gregory Peters doubts Kevin Hassett can unilaterally enact Trump's desired rate cuts as Fed Chair.
- Fed rate decisions are collective, limiting Hassett's unilateral authority to implement monetary easing.
- Treasury yields have risen amid speculation of Hassett's appointment and concerns for Fed autonomy.
- Investors worry about Fed independence and administration meddling, impacting bond market stability.
Peters offered these comments amidst growing speculation that Hassett, who heads the White House National Economic Council, might implement substantial monetary easing to satisfy Trump should he be appointed to lead the Federal Reserve. However, the PGIM fund manager indicated that because Fed rate determinations are made collectively, Hassett would not possess the unilateral authority to enact such changes.
“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 highlighted the increase in Treasury yields since it was first reported last week that Hassett is becoming the leading candidate to succeed Fed Chair Jerome Powell, a figure Trump has frequently faulted for not lowering interest rates at a sufficient pace. His statements came as a reaction to a financial Times article indicating that bond purchasers, such as members of the borrowing advisory committee, have expressed worries to the US Treasury regarding Hassett's possible selection, signaling unease about the central bank's ongoing political autonomy.
His remarks surface as investors in bonds and major hedge fund executives consider the consequences of Trump's restructuring of the Federal Reserve, where even suggestions of shifts in strategy can cause widespread effects across international financial arenas. The increasing likelihood that Trump might select a Fed chairperson favoring looser monetary policy is a result of his prolonged, extraordinary assaults on the organization, which have included insults directed at Powell and an attempt to oust board member Lisa Cook.Play Video
Hassett is generally seen as favoring Trump's inclination toward reduced rates. Trump stated this week that the competition for the top position at the central bank is “down to one”, while describing Hassett as a “potential Fed chair.”.
Hassett, while being evasive regarding his prospects for securing the position, rebuffed criticisms this week, pointing to a successful Treasury auction as evidence the market hasn't been unnerved by speculation he'll accept the role. However, certain traders have increased their wagers that the speed of interest rate reductions is likely to accelerate, with such positions building following Hassett's rise to the leading candidate.
The increasing likelihood of Hassett securing the position has prompted inquiries regarding the Federal Reserve's autonomy, which Peters stated continues to be a significant worry for market participants.
“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.“
Yields on 10-year Treasuries climbed approximately 2 basis points to 4.09% on Thursday morning in New York, an increase of nearly 10 basis points from late last week. Yields on policy-sensitive two-year notes advanced 3 basis points to 3.51%. Peters further stated that the increasing term premium, which represents the additional yield investors require for the hazards associated with holding longer-duration bonds, mirrors growing investor apprehension regarding the threats to the Fed’s autonomy.
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.”
