• Kevin Hassett, a White House economic adviser, publicly states his relationship with Federal Reserve Chair Jerome Powell is "very strong," signaling efforts to downplay tensions over policy disagreements.
  • The Fed is implementing significant regulatory streamlining in 2025, including proposals to enhance stress-test transparency and reduce supervisory burdens, aligning with a broader administration push to refocus on core financial risks.
  • These developments occur as the Fed withdraws from climate-risk coordination networks, sparking debate over the balance between deregulation and long-term financial stability.

Kevin Hassett, a key economic adviser to the White House, emphasized on Thursday that his relationship with Federal Reserve Chair Jerome Powell remains "very strong," a comment that comes amid ongoing policy debates over interest rates and regulatory oversight. According to people familiar with the matter, the statement was made during a private briefing aimed at reassuring markets about coordination between the administration and the central bank, even as tensions occasionally surface over inflation management and financial rules.

In 2025, the Fed has been actively pursuing a deregulatory agenda, with recent moves including requests for comment on proposals to boost transparency in annual bank stress tests and joint efforts with other federal agencies to reduce regulatory burdens. For instance, the Fed and its counterparts intend to rescind the 2023 Community Reinvestment Act final rule, signaling a shift toward less stringent community-investment requirements. This aligns with a broader White House directive to scale back what critics call regulatory "mission creep," focusing supervision more narrowly on material risks rather than process-heavy compliance issues.

Parallel to these changes, the Fed is restructuring its supervision and regulation division to emphasize a flatter management approach and a planned reduction of Board-level supervisory staff by about 30% through attrition and voluntary separations by 2026. "What institutional investors really care about is regulatory stability," one anonymous banking executive noted, echoing sentiments that these reforms could enhance predictability for financial institutions. However, consumer advocates have expressed concerns that easing CRA rules might weaken incentives for lending in underserved areas, potentially impacting community development efforts.

The Fed's withdrawal from the Network for Greening the Financial System (NGFS) earlier this year marks another significant shift, retreating from multilateral climate-risk coordination amid political criticism of climate-related financial regulation. This move contrasts with international trends where some central banks are deepening their focus on environmental risks, highlighting a divergence in supervisory philosophies. Without continued engagement, experts warn that long-term systemic risks from climate change could be underassessed, though proponents argue it refocuses the Fed on its core mandates.

In the short term, implementation of the revised supervisory rating framework for large banks is expected to alter how institutions are assessed, with a greater emphasis on material risks over reputational concerns. Public consultations on stress-test transparency and CRA rollbacks will shape the final regulatory landscape, potentially sparking further political debate. As one analyst put it, "The strength of the relationship between Powell and the administration is crucial for preserving Fed independence in rate-setting and coordinating during crises."

Looking ahead, the trade-off between deregulation and resilience remains a key theme, with less process focus potentially boosting bank profitability but raising tail risks if material threats are misjudged. Attempts to reach the White House and Fed for additional comments were unsuccessful by press time. In a minor correction, an earlier version misstated the timeline for staff reductions; it is planned by 2026, not 2025.