Dimon stated outright that Warsh would become a "great chairman," and warned that another leading candidate, Kevin Hassett, might be more compliant with the White House’s desire for interest rate cuts. However, this very compliance could trigger adverse market reactions, causing long-term borrowing costs to rise instead of fall, thereby undermining the crucial independence of the Federal Reserve.
On Thursday, one of Wall Street's most powerful bankers, JPMorgan CEO Jamie Dimon, made his stance clear at a private conference for asset management CEOs in New York: he supports former Federal Reserve Governor Kevin Warsh to take the helm of the Federal Reserve.
Dimon stated outright that Warsh would become a "great chairman," and warned the Wall Street executives present: another leading candidate, Kevin Hassett, might be more compliant with the White House’s desire for interest rate cuts. However, this very compliance could trigger adverse market reactions, causing long-term borrowing costs to rise instead of fall, thereby undermining the crucial independence of the Federal Reserve.
Dimon’s Warning: Short-end Obeys the President, Long-end Obeys the Market
According to a report by the Financial Times, Dimon analyzed in a closed-door meeting that if Hassett were elected, he would most likely cut short-term rates quickly to align with Trump’s economic demands. However, while the Federal Reserve can only control short-term rates, long-term rates (such as the yield on 10-year U.S. Treasury bonds) are determined by market pricing.
Dimon warned that due to market concerns over Hassett's lack of independence and excessive alignment with the White House, such aggressive rate cuts could ignite inflation expectations. At that point, market-priced long-term rates (such as the yield on 10-year U.S. Treasury bonds) would soar as investors sell off bonds.
In other words, the White House’s attempt to reduce financing costs by changing personnel could very well be thwarted by the bond market's "vigilantes."
The market has already begun pricing in this risk. Since media reports in late November indicated Hassett was the frontrunner, the yield on the 10-year U.S. Treasury bond — the anchor of global asset pricing — has jumped from 4.0% to 4.2%. Meanwhile, anxiety among bond traders about inflation is growing — a key measure of long-term inflation expectations, the “5y5y forward inflation swap” rate, has risen by 0.06 percentage points recently, hitting a one-month high.
Such concerns are not isolated cases on Wall Street. Several senior investors overseeing $30 trillion worth of the U.S. Treasury market have directly expressed concerns to Treasury officials about Hassett’s political leanings, questioning whether his close political alliance with Trump could undermine the credibility of monetary policy.
Balancing Loyalty and Professionalism
Trump has long been dissatisfied with current Chairman Jay Powell for raising rates instead of cutting them significantly, even privately calling him an “idiot.” Trump has explicitly stated that loyalty and willingness to aggressively cut rates are his key criteria for selecting candidates.
On Friday, Trump confirmed to The Wall Street Journal that Kevin Warsh and Kevin Hassett are currently the frontrunners:
Kevin Hassett: The top favorite in the betting markets. As a former White House insider, he has publicly supported Trump's call for aggressive interest rate cuts — even suggesting that the cuts should be twice the current level. Despite his recent attempts to justify maintaining central bank independence, in the eyes of Wall Street, the label of "enforcer" is hard to shake off.
Kevin Warsh: A former Federal Reserve governor and economist at the Hoover Institution. Although he is unpopular within the Fed due to frequent criticism after leaving office, and some view him as "overly hawkish" for being overly concerned about inflation just before the collapse of Lehman Brothers in 2008, he has gained endorsements from Wall Street heavyweights like Jamie Dimon.
According to The Wall Street Journal, Trump, Treasury Secretary Scott Bessent, and other senior officials interviewed Warsh at the White House on Wednesday.
Currently, the selection process led by incoming Treasury Secretary Scott Bessent is still ongoing, with Trump expected to interview more candidates next week. Whether the choice will favor an "independent" trusted by Wall Street or a "loyalist" preferred by the White House will become clear in the coming weeks.
Editor/melody