• Treasury Secretary Scott Bessent's proposal for a three-year residency requirement for regional Fed presidents gains a key supporter, seen as a move to increase political sway over monetary policy.
  • The plan emerges amid ongoing White House pressure for rate cuts and a parallel legal battle over the attempted removal of Governor Lisa Cook, putting central bank independence under strain.
  • Analysts warn that shifting appointment rules could alter the FOMC's composition and decision-making, with potential long-term implications for inflation expectations and the dollar's global standing.

Kevin Hassett, a former economic advisor to President Trump and a name frequently mentioned for senior Fed roles, has thrown his support behind Treasury Secretary Scott Bessent's controversial push to impose a residency requirement on regional Federal Reserve Bank presidents. According to people familiar with the discussions, Hassett has privately endorsed the idea that presidents of the 12 regional Fed banks should have lived in their districts for at least three years before appointment.

Secretary Bessent has framed the proposal as a way to strengthen regional representation within the Federal Open Market Committee (FOMC). However, the effort is widely interpreted in Washington and financial circles as a mechanism for the administration to gain more leverage over the committee at a time of sharp disputes over the path of interest rates. The White House has been publicly pressuring the Fed to cut rates more aggressively to bolster economic growth.

"What you're seeing is a multi-front effort to reshape the Fed's leadership and, by extension, its policy stance," said one policy analyst who asked not to be named due to the sensitivity of the matter. "The residency rule, the fight over Governor Cook's seat—it's all part of the same playbook."

The debate arrives as a federal court has temporarily blocked the administration's attempt to remove Governor Lisa Cook, a move seen as a critical test of the legal protections for Fed officials' independence. This legal context raises immediate questions about how far the executive branch can go in influencing Fed personnel without new legislation from Congress.

Market participants are watching closely. Deutsche Bank analysts recently flagged "potential infringement on Fed independence" as a key macro risk, directly linking the Bessent proposal and the Cook litigation to concerns about politicized monetary policy. While supporters argue a residency rule would make the Fed more accountable to local economies, many economists warn that undermining the central bank's traditional insulation from short-term political pressure could unanchor inflation expectations and increase long-term risk premiums.

In the near term, focus will be on whether the Fed's Board of Governors adopts Bessent's suggested standard in practice. The outcome could significantly influence the future composition of the FOMC, which sets the nation's benchmark interest rate. Longer term, experts caution that a shift toward more politically aligned regional presidents could alter the committee's decision-making style and even affect the global credibility of the U.S. central bank.

Correction: An earlier version of this article misstated the required residency period in the summary bullets. The proposal is for a three-year requirement, not five.