Three Kevins

The business world is abuzz with speculation about who President Trump will name to replace Federal Reserve Chairman Jerome Powell whose term expires in May 2026. But May 2026 is a long way away so why is everybody in a dander about the next chairman?

It is clear that President Trump is very unhappy about how Powell is performing as chairman. He posts practically every day on Truth Social about how Powell is “too late” or “too slow” in lowering interest rates. A little history is in order as a reminder. After Covid hit, the Fed lowered the Fed funds Rate to zero (technically a range between zero and .25% but the Effective Fed Funds Rate was pretty close to zero). But after Presidents Trump and Biden poured money into the economy to counteract the effects of the pandemic, inflation roared back to life reaching heights not seen for forty years. To put the brakes on inflation, the Fed started raising the fed funds rate reaching a target range of 5.25-5.50% by August of 2023. Mortgage rates which had been around three percent previously spiked up to over seven percent in 2023 before falling to around 5.86% now, according to the Fed. But inflation according to the CPI peaked at about nine percent before falling back to 2.4% now, only slightly above the Fed’s target rate of 2.0%. Despite the decline in inflation the Fed has maintained the Fed funds rate very high at 4.25-4.50% a decline of only one percent, which is why the mortgage rate remains stubbornly high as well.

President Trump is justified in his belief that interest rates could and should be lower. But Mr. Powell has a good case as well. He points out that the American economy is chugging along (the envy of the world as the Economist magazine puts it) with economic growth over two percent, low unemployment and the stock market at record highs. Adding stimulus in the form of lower interest rates to an already humming economy will only lead to one thing – inflation. Powell’s other worry is the opposite, a recession caused by a harsh and arbitrary tariff policy. An erratic tariff policy that increases uncertainty makes business leaders hesitant to invest or hire new people. Lowering interest rates now would reduce policy options available to the Fed if a recession were to occur. The fallout from Mr. Trump’s erratic and arbitrary policy decisions tell Mr. Powell one thing – exercise caution. And that’s why he is holding interest rates unchanged.

But President Trump does not like subordinates whose loyalty lies elsewhere, so he wants a new person to be the chairman of the Fed. Much of the buzz about who will succeed Chairman Powell revolves around two Kevins, Kevin Warsh, a former Fed Governor and Visiting Fellow at the Hoover Institution, and Kevin Hassett, Director of the National Economic Council and a close advisor to President Trump.

Kevin Warsh recently had an in-depth interview with the Hoover Institution’s Peter Robinson in which he expressed his views on the Fed. While he was on the Fed Board he supported Quantitative Easing (QE) as an emergency response to the Great Recession of 2008 (QE is where the Fed purchases securities – mostly US treasuries – to provide liquidity to banks and other financial institutions). But he said that he did not support the continued use of Quantitative Easing (QE2 and QE3) long after the crisis was over, which greatly expanded the size of the Fed’s balance sheet up to about $4 and a half trillion as late as 2018 and which peaked at nearly nine trillion after Covid. The Fed balance sheet supported the huge deficits of both Trump and Biden limiting the inflationary impact of those deficits (the inflation was caused by the direct cash payments to all citizens). Because the benefit of QE was concentrated on financial institutions, the Fed’s action caused a rise in the prices of financial assets such as the stock market, greatly increasing the wealth disparity between the rich and the poor.

Kevin Warsh wants to move the Fed from the front page to the back pages of the financial section where it belongs. He studied under Milton Friedman and believes that the monetary system should accommodate economic growth not drive economic growth. Central banks should be boring. He is a monetarist, not a Keynesian.

The other Kevin, Kevin Hassett, is very different. Mr. Hassett has not done any in-depth interviews regarding the Fed that I can find but is seen regularly on TV defending the president’s sometime incomprehensible economic policies. In a recent interview with Larry Kudlow (Director of the National Economic Council in the first Trump Administration) Kevin Hassett noted that the European Central Bank’s interest rate was at three percent, well below that of the Fed’s rate even though the inflation rates are about the same (although Mr. Hassett failed to mention that the EU’s GDP grew at less than half the US rate while their unemployment rate is about 50% higher which might explain why the European Central Bank wants to stimulate their economy). Both Kudlow and Hasset want to reform the Fed because they believe that it is too partisan in favor of Democrats (which is probably true of almost all US government agencies hence DOGE).

The third Kevin is not a likely candidate to be the next chairman of the Fed. I mention this because I think Kevin, the minion in Despicable Me, bears an uncanny likeness to Kevin Hasset. Also, the primary characteristic of Kevin the minion is his loyalty to his boss Gru, very similar to Mr. Hassett’s loyalty to Mr. Trump.

There are two other interesting developments related to the chairmanship of the Fed. Recently, Russell Vought, Director of the Office of Management and Budget and formerly of Project 2025, has demanded an investigation into the cost overruns in the renovation of the Federal Reserve building in Washington and Chairman Powell’s testimony in Congress about those renovations. This could be a back door way of getting rid of Chairman Powel who cannot be removed for policy differences (because the Fed is supposedly independent) but he can be removed for cause, such as corruption.

Another interesting development was the idea that, although most Fed chairmen retire at the end of their terms, Mr. Powell’s appointment as a governor of the Fed extends to January of 2027 even though his term as chairman ends in May 2026. He could technically stay on as a voting member of the Fed under a new chairman.

It looks like the Fed drama will continue for many months to come. But given President Trump’s penchant to value loyalty over competence in nominating people for senior positions in his administration I am putting my money on Mr. Hassett.