As the general election approaches, every move of the Federal Reserve will be tested by dual political and economic pressures.

Recently, Kevin Hassett, former economic advisor to Donald Trump, defended the Federal Reserve's significant interest rate cut in September, stating that this measure was reasonable.

He also criticized some of the Federal Reserve's decisions in recent years as politically influenced, claiming that the Federal Reserve has not maintained the independence it should have.

His remarks have raised concerns about the delicate relationship between Trump and the Federal Reserve. Hassett previously served as the Chairman of the White House Council of Economic Advisers during the Trump administration, and is now a researcher at the Hoover Institution at Stanford University. He is considered a top candidate for future chairmanship of the Federal Reserve by Trump.

Hassett supports the Federal Reserve's rate cut in September: Data supports.

In an interview with the Financial Times of the United Kingdom on the 18th, Hassett stated that the Federal Reserve's significant interest rate cut in September was "very reasonable" because the economic data at the time showed a clear weakness in the job market and the risk of a slowdown.

He emphasized that based on the data at the time, the Federal Reserve took the interest rate cut measures, which were greater than the market's expected 25 basis points, ultimately reducing by 50 basis points. Hassett believes that the decision to cut rates has economic justification, aiming to address the weakness in the labor market and prevent further economic deterioration.

This statement contrasts sharply with Trump's earlier remarks at the Detroit Economic Club. In his speech, Trump criticized the Fed's rate cuts as too hasty, calling it a "political move" taken before the election. He implied that the Fed was trying to help Democratic candidate Harris by lowering borrowing costs, thus influencing the election.

Despite Hassett's defense of the rate cut in September, the future direction of the Fed's policy remains uncertain. According to market forecasts, although the Fed made an aggressive 50 basis point rate cut in September, it may take a more conservative stance in the coming months. In November and December, the Fed is expected to make smaller rate cuts, possibly only 25 basis points.

Hassett acknowledges that in hindsight, the Fed may have wanted to be more restrained in the rate cut in September, but overall, the decision was the right choice based on the economic conditions at the time. He said:

"I won't criticize their actions in September, although in hindsight, they may wish they hadn't done so."

Furthermore, his view on a strong dollar is in line with Trump's. In an interview, he stated:

"For a long time, a strong dollar has been an important part of the global economy. A strong dollar policy is the source of our seigniorage, so we should work to maintain it."

Questioning the Fed's independence

Hassett agrees with Trump's view that some of the Fed's recent decisions have had political undertones in recent years:

"I have reason to believe that the Federal Reserve has not achieved the independence it should have."

For example, he mentioned the Fed's decision to raise interest rates in December 2016, just before Trump took office - despite the data at the time not supporting a rate hike.

The Fed's "double standard" behavior appears particularly evident in Hassett's eyes. He also pointed out that after the Democrats took power, the Fed did not take corresponding policy measures to balance fiscal expansion.

Nevertheless, Hassett denied concerns from the outside world that Trump might undermine the independence of the Federal Reserve. He emphasized that Trump supports the Fed as an independent institution, but at the same time, Trump has the right to express opinions on policies, and he hopes to appoint "truly independent" individuals to lead the central bank:

"I believe that Trump supports the independence of the Federal Reserve, but he also wants his voice to be heard, he wants genuinely independent individuals there."

As the current Fed Chairman Powell's term is set to end in 2026, there is widespread speculation that if Trump wins the upcoming election, he is likely to nominate Hassett as the next Fed Chairman, who has been a key member of Trump's economic team for many years.

Editor/Lambor