• Kevin Hassett, frontrunner for Fed chair, says there's "plenty of room" for interest-rate cuts beyond the expected 25-basis-point reduction.
  • Hassett aligns with Trump's push for lower rates while making a supply-side case tied to AI productivity gains.
  • Markets are pricing in easing, but internal Fed divisions and inflation above target complicate the path forward.

Kevin Hassett, head of the White House National Economic Council and the leading candidate to succeed Jerome Powell as Federal Reserve chair, has indicated that the central bank will "probably need to do some more" in terms of interest-rate cuts. Speaking to reporters on Thursday, Hassett argued there is "plenty of room to cut rates in the months ahead," even as he insisted he would not bow to political pressure from the Trump administration.

His comments come as financial markets widely anticipate a 25-basis-point cut at the Fed's upcoming meeting, with traders now pricing in a roughly 70% chance of that move, according to people familiar with market positioning. But Hassett's language suggests openness to a larger or more extended easing cycle, potentially diverging from some current Federal Open Market Committee members who have expressed caution.

"What we're seeing is a productivity boom driven by artificial intelligence that acts as a positive supply shock," Hassett said, according to a transcript reviewed by this outlet. "That creates room for more accommodative policy without reigniting inflation." Inflation, as measured by the Personal Consumption Expenditures index, is running at about 2.8% year-over-year, modestly above the Fed's 2% target.

Efforts to reach other FOMC members for comment were unsuccessful by press time, but analysts note that Hassett's stance could face resistance. "He might need to move toward the center to build consensus," said one economist at a major bank, speaking on condition of anonymity due to the sensitivity of the discussions. "The Fed is unusually divided right now."

Hassett has publicly aligned with President Trump's push for lower rates, framing the argument in economic rather than political terms. Trump has made aggressive demands for cuts, viewing a willingness to ease "quickly" as a litmus test for his Fed chair pick, according to administration officials. Meanwhile, the labor market remains relatively steady, with layoffs ticking up only slightly and job turnover pointing to stability.

In a brief phone interview, Hassett emphasized his independence. "My role is to analyze the data and make recommendations based on what's best for the economy," he said. "There's no political agenda here." Still, his comments are being interpreted as signaling a more dovish Fed if he is confirmed, with implications for rate-sensitive sectors like housing and autos.

Global context adds another layer. Other major central banks, including the Bank of Canada and Bank of Japan, are in cautious or easing modes, creating an environment of global monetary accommodation. U.S. stocks edged higher on the news, with the S&P 500 gaining 0.3% in afternoon trading, while assets like silver rallied on expectations of rate reductions.

Short-term, the focus is on the upcoming Fed meeting and whether guidance will hint at further cuts. Hassett's "probably will need to do some more" phrasing suggests he could advocate for a faster or deeper easing path than some peers prefer. But with inflation above target and debt levels high, critics warn that aggressive cuts could undermine Fed credibility or fuel asset-price imbalances.

Correction: An earlier version of this article misstated the current inflation rate; it is 2.8% year-over-year, not 2.5%. The text has been updated.