Betsent's High-Stakes Balancing Act in Fed Chair Selection
Treasury Secretary Betsent is deliberately trying to avoid the fate of his predecessor, Steven Mnuchin, who served as Treasury Secretary during Trump's first term. Mnuchin, who worked hard to find a Fed Chair that Trump would approve of, ultimately found himself outside of Trump's inner circle.
To avoid Mnuchin's fate, Betsent must balance Trump's demands with the need for financial market confidence and trust. According to sources familiar with the matter, Betsent intends to take a more "hands-off" approach, having compiled a list of nearly a dozen candidates but not expected to push for any one candidate, as Mnuchin did in 2018 when he pushed for Jerome Powell to be Chairman. After interviewing these candidates, he plans to narrow the list to a few top contenders, without attaching any rankings or clear preferences.
A former Trump administration official said that Betsent wants to "avoid taking the blame," and let Trump take responsibility for the final decision himself.
Trump told reporters last Friday that he "pretty much" knows who he wants to pick, and that he has a "top three" list including National Economic Council Director Kevin Hassett, Fed Governor Christopher Waller, and former Fed official Kevin Warsh.
"Betsent being more cautious than Mnuchin is wise," said Stephen Myrow, managing partner at Beacon Policy Advisors, a Washington research firm, and former Treasury official. "It's a good survival strategy."
As one of Trump's most trusted cabinet members, Betsent not only holds a key position but also maintains credibility on Wall Street. This makes him a key negotiator in tariff negotiations and the best candidate to lead Fed Chair interviews.
However, this task is fraught with danger. Trump has stated that he wants the Fed to aggressively cut interest rates by three percentage points. But investors fear that such drastic action could roil the bond market and lead to runaway inflation.
A Lesson from the Past: Mnuchin's Public Humiliation
In 2018, Mnuchin orchestrated Powell's ascension to Fed Chair, but when the Fed raised interest rates despite his protests, Trump quickly became disillusioned with the pick, publicly lambasting Powell and accusing Mnuchin of misleading him.
Trump's informal economic advisor, Art Laffer, the economist whose supply-side theories guided Ronald Reagan's tax cuts, said, "Trump was screaming at Mnuchin at the time and thought he should be responsible, he had urged him to appoint Powell, Mnuchin was sitting there, stiff and trembling."
Trump was so angry at the time that he even considered firing Mnuchin, but the latter managed to keep his job, and eventually served a full four years in Trump's first term.
In the nearly eight years since Powell first took office, Trump's resentment of the Fed Chair has only grown. Trump has nicknamed Powell "Mr. Late" because he said Powell failed to act quickly to cut interest rates. Trump had considered firing Powell, and is currently embroiled in a legal battle over his attempt to oust Fed Governor Lisa Cook over mortgage fraud allegations.
Trump has tried to distance himself from his decision to promote Powell to Chairman, stating in July that he was "surprised" Powell continued to be appointed to lead the Fed, and blamed Biden.
The public attacks on the Fed make Betsent's job even more difficult, as he tries to reassure markets and please a demanding boss.
Furthermore, as he tries to balance politics with economic realities, the bond market is flashing warning signs that the aggressive rate cuts Trump is pushing could reignite inflation, and the 30-year U.S. Treasury yield is nearing 5%.
A "Life or Death" Situation with No Room for Error
David Wessel, director of the Hutchins Center on Fiscal and Monetary Policy at the Brookings Institution, said that Betsent's actions indicate that he is trying to convey a message to the markets, the media and Congress that "the selection of the Fed Chair actually has a process, and is not entirely at Trump's whim."
When asked last Sunday about the independence of the Fed under a new chair, Betsent said, "We want someone who is open-minded and considers different policies." He also noted that no matter who the next chairman is, "President Trump will let others know his views."
Allies of the Treasury Secretary fear that his standing with Trump could quickly decline if the selected Fed pick fails to cut interest rates quickly enough, or fails to closely follow his agenda.
Trump has two goals: lower consumer costs and lower housing costs, both of which are key metrics that voters say will influence their votes in the 2026 midterm elections.
If Betsent's selection process results in a Fed Chair who delivers positive results, his standing in the Trump administration will likely be further strengthened. Otherwise, there are many skeptics who do not believe he can avoid the "backlash," despite the efforts he has made. Wessel said:
"Anyone who thinks Trump is reliable has clearly not been watching his consistent way of doing things very closely." Furthermore, it is crucial to understand that the selection of a Fed Chair is not merely an economic matter; it is also a political and strategic decision that can significantly impact the future of the American and global economy.
The Role of Technology in Monetary Policy
With rapid technological advancements, the new Fed Chair must be well-versed in emerging financial technologies such as cryptocurrencies and blockchain technology, and how they could impact monetary policy and financial stability. They must be able to adapt to these changes and make informed decisions on how to regulate and utilize these technologies to improve the economy.
Global Challenges and Their Impact on Monetary Policy
In addition to domestic challenges, the new Fed Chair must be aware of global challenges such as climate change and geopolitical tensions, and how they could impact the American economy. They must be able to collaborate with other central banks and international organizations to address these challenges and ensure global financial stability.
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