• White House adviser Kevin Hassett argues the Fed should not hike rates and will have room to cut, provided inflation remains contained.
  • Hassett's comments signal a potential shift toward more accommodative monetary policy under new leadership.
  • Markets are pricing in rate cuts, with implications for borrowing costs, risk assets, and global liquidity.

Hassett's Rate-Cut Vision

Kevin Hassett, a top White House economic adviser, said the Federal Reserve should not raise interest rates and will have "plenty of room" to cut, according to people familiar with his remarks. Speaking at a private event, Hassett emphasized that the current inflation trajectory, if it stays near or below the Fed's 2% target, would allow for easing. "Without a deal on inflation, the Fed would be forced to hold steady, but we see a path to cuts," he said, according to a participant.

Context and Implications

Hassett's comments come amid ongoing discussions about the next Fed chair and the central bank's policy direction. His view aligns with a broader political push for lower borrowing costs to spur growth, even as inflation risks persist. The remarks have already influenced market expectations: fed funds futures now price in a higher probability of a rate cut by mid-2025, compressing short-term yields.

Efforts to restructure the Fed's policy stance have hit a snag, as some officials worry about premature easing. However, without a decisive move, some analysts warn the economy could face headwinds from persistent tight conditions. “If inflation behaves, we could see a series of cuts that support housing and business investment,” said a former Fed economist.

Market and Global Reactions

In response, the dollar edged lower, while risk assets like equities and credit gained. The yield on the 2-year Treasury note fell 5 basis points to 4.10% on the day. Globally, if other central banks follow suit, liquidity conditions could improve, though the timing remains uncertain.

Reached for comment, a Fed spokesperson declined to discuss Hassett's remarks, reiterating the central bank's data-dependent approach.

Clarification

This article has been updated to reflect that Hassett's comments were made at a private event, not a public forum.