Trump takes Bessent off Fed short list, says four remain

The short list for the next chair of the Federal Reserve is down to four names, and Treasury Secretary Scott Bessent is not one of them.

During an appearance on CNBC on Tuesday morning, President Donald Trump said there are “numerous people” who would be qualified to lead the central bank next year, including two names that have been circulated frequently in recent months: National Economic Council Director Kevin Hassett and former Fed Gov. Kevin Warsh.

“Both Kevins are very good and there are other people that are very good, too,” Trump said.

Warsh and Hassett have both argued publicly for lower rates in recent months and criticized current Fed officials for dragging their feet on adjusting their policy rates. They have also been sympathetic to a less rigid version of central bank independence, noting that monetary policymakers should be held more accountable for their actions.

Trump was asked whether Fed Gov. Christopher Waller — one of two officials who voted in favor of cutting interest rates during last week’s Federal Open Market Committee meeting — was in the running, but the president declined to share the names of the other people he is considering for the role.

He did, however, rule out Bessent. The Treasury chief’s name has often been bandied about as a potential replacement for Fed Chair Jerome Powell, whose chairmanship expires next spring.

“I love Scott but he wants to stay where he is, so I’ll take him off there because I asked him just last night ‘Is this something you want?’ ‘Nope, I want to stay where I am,'” Trump said. “He actually said ‘I want to work with you, it’s such an honor.'”

The question of who will succeed Powell has been a hot topic among Fed watchers since Trump returned to office in January and took on greater urgency in the spring and summer when the president flirted with the idea of removing the country’s top central banker. 

The topic came to the fore again on Friday when Fed Gov. Adriana Kugler announced that she would step down from her position at the end of this week, opening a vacancy on the Board of Governors nearly six months ahead of schedule.

Trump said the departure of Kugler — who had become one of the more vocal officials in favor of delaying changes to the Fed’s benchmark interest rate — was “pleasant surprise.” He noted that he intends to nominate someone to finish the remaining months on her term “very shortly,” adding that it is a “possibility” that person will also be his pick for chair.

Investors were also surprised by Kugler’s announcement, with bond and Fed futures markets appearing to take the news — along with a weaker than expected employment report — as a signal that lower interest rates are forthcoming. Yields on 10-year Treasury notes fell close to 20 basis points during the day on Friday and the CEM FedWatch tool showed that the percentage of traders pricing in a rate cut at next month’s meeting jumped from 37% on Thursday to 90% by Monday.

In a note, Mark Malek, chief investment officer of the investment firm Siebert Financial, wrote that the replacement of Kugler with a more cut-oriented governor could tip the FOMC in a more “dovish” direction.

“She was one of the more consistently hawkish governors on the FOMC, more aligned with Musalem, Schmid, Collins, and Williams,” Malek said, referring to the presidents of the Federal Reserve Banks of St. Louis, Kansas City, Boston and New York. “Her resignation gives Trump a rare mid-cycle chance to flip a hawk seat into a dove, and that’s powerful.”

Another significant economic oversight position also opened up on Friday when Trump fired Bureau of Labor Statistics Commissioner Erika McEntarfer after her agency released its monthly employment, which showed slower than expected job creation in July. The president accused the numbers of being “rigged” to make his administration look bad. 

When pressed for evidence of this claim on CNBC, Trump pointed to previous revisions to BLS employment figures last year in the lead up to his electoral contest against then-Vice President Kamala Harris. Such revisions are a common practice for the government data agency and have become larger in recent years as survey participation rates decline. 

Judith Raneri, vice president and senior portfolio manager at Gabelli Funds, said who Trump chooses to fill the vacancies at the Fed and BLS could shape how confident markets are in those agencies for years to come.

“Ultimately, these appointments will test whether our economic institutions can remain independent amid growing political pressure.” Ranieri said. “Who President Trump selects won’t just shape policy, it will send a clear signal to markets about the integrity of the data and decisions that anchor our economy. The stakes are high, with potential consequences that extend well beyond the next jobs report or Fed meeting.”

For the Fed, it is unlikely that Trump will be able to install a replacement for Kugler before the FOMC’s next meeting on September 16 and 17, given that Congress is adjourned for its August recess, said Derek Tang, CEO of Monetary Policy Analytics, adding that his baseline expectation remains that the Fed will cut rates in December. 

Tang said a more overtly partisan appointment to the Fed Board could contribute to its politicization over time, but he said he doubts it will be enough to meaningfully change the course of policy in the near term. He said Powell and a majority of other FOMC participants have been steadfast in their insistence that they will not bow to outside pressure. 

“If you look at the recent interviews from Fed presidents, they’re quite adamant that they want to keep this very academic, neutral focus to what they do, mostly because it actually makes their job easier,” he said. “It’s hard enough as it is, and if you inject politics in it as well, then the job just becomes impossible.”