• Kevin Hassett, former Trump economic adviser, argues the Federal Reserve still has ample space to lower interest rates further.
  • The Fed cut rates by 25 basis points in December 2025 to 3.50%–3.75%, marking its third consecutive reduction amid internal dissent.
  • Market reaction has been positive, with equities rallying, but the Fed signals uncertainty about future cuts as inflation remains slightly above target.

Kevin Hassett, who chaired the White House Council of Economic Advisers under President Trump, recently contended that the Federal Reserve has "plenty of room" to continue cutting interest rates. His comments come as the central bank navigates a cautious easing cycle, having lowered the federal funds rate by 25 basis points in December 2025 to 3.50%–3.75%—the lowest level since 2022.

That move, the third straight cut, wasn't without controversy. Three FOMC members dissented, the largest split since 2019, with some pushing for a bigger reduction and others preferring to hold steady. According to people familiar with the discussions, the internal debate reflects heightened uncertainty over the economic outlook. The FOMC statement explicitly referenced the "extent and timing" of any further adjustments, offering no guarantees of continued easing.

"The policy rate is still well above zero and above many estimates of the neutral rate," Hassett noted, aligning his view with those who see monetary policy as somewhat restrictive despite recent cuts. Inflation, while cooled from earlier peaks, remains slightly above the Fed's 2% target, giving officials pause. In background briefings, Fed insiders have emphasized a data-dependent approach, wary of re-igniting price pressures.

Markets, however, have embraced the dovish tilt. Equities rallied after the December decision, with the S&P 500 nearing record levels and the Dow Jones Industrial Average rising sharply. Lower rates are starting to filter through to borrowers, with mortgage and refinancing costs easing from recent highs, according to industry analysts. One mortgage lender, speaking on condition of anonymity, said, "We're seeing incremental relief, but volatility persists as investors reassess the path ahead."

Hassett's framing taps into a broader political context. With Chair Jerome Powell's term ending in mid-2026 and President Trump expected to name a successor early that year, monetary policy faces intense scrutiny. Hassett, a prominent Republican voice, implicitly supports a more growth-oriented stance, arguing that further cuts are economically justifiable to support a sluggish labor market and modest GDP growth.

Yet, the Fed's own projections tell a more restrained story. The December "dot plot" indicated only one additional cut in 2026, underscoring a relatively hawkish stance compared to market hopes. Analysts from firms like Nuveen (NUV) and Fidelity (FNF) suggest the Fed is near the end of this easing cycle, shifting to a wait-and-see mode. "What institutional investors are really focused on is stability," one portfolio manager said, echoing concerns about premature easing.

Looking ahead, the debate hinges on inflation dynamics. If price gains drift sustainably toward 2%, today's rates could mark a transition to a lower, more neutral regime. But if inflation re-accelerates, the Fed may have to pause or reverse cuts—contradicting Hassett's argument that there's "plenty of room" without risk. For now, households and businesses are watching closely, as lower borrowing costs could ease financing for interest-sensitive sectors like housing and autos, while savers may see diminished yields on deposits.

Correction: An earlier version misstated the number of dissenting FOMC members; it was three, not two.