Chris Waller, not Kevin Hassett, should lead the Federal Reserve

On November 30TH President Donald Trump said he had decided whom to nominate as the next chair of the Federal Reserve. He has since said he will reveal his choice early next year. In betting markets, money has piled on Kevin Hassett, his trusted economic adviser. Mr Trump is desperate for the Fed to cut interest rates faster. He has tried to oust Lisa Cook, a Fed governor; the row over whether he can will be heard by the Supreme Court in January. And he has already put one of his advisers, Stephen Miran, on the Fed board temporarily. Mr Miran has voted for bumper rate cuts. As chair, Mr Hassett would paddle in the same direction.

It is common for the Fed chair to have a party affiliation. If having worked in the White House were a bar, then neither Alan Greenspan nor Janet Yellen could have occupied the role. Mr Hassett also has some qualifications for the top job. Before joining the first Trump administration in 2017, he was a respected, if partisan, economist who had been published in leading journals. No one can claim he would be ignorant of the dangers of setting interest rates to keep Mr Trump happy or debt cheap, rather than to control inflation.

The question is how much Mr Hassett would care about those risks. While working for Mr Trump, he has behaved like a hack unconcerned with reality. In 2017 his “very [conservative]” estimate was that Mr Trump’s corporate-tax cuts would boost annual household incomes by $4,000 on average—far above other estimates at the time and any effect picked up since. In May 2020 his “cubic” model of the covid-19 pandemic projected that deaths would soon cease entirely. Absurdities such as these have torched his scholarly reputation. Even before entering the White House he made one of the worst forecasts in history: in 1999, near the height of the dotcom boom, he predicted a near-quadrupling of the Dow Jones index.

There is a candidate whose record is far superior. Chris Waller has sat on the Fed’s board since 2020, has worked in the Fed system since 2009 and was previously an academic. Whereas Mr Hassett’s research concerned tax policy, Mr Waller is a monetary-policy expert—and has a strong record of divining where the economy is headed.

In 2022 many prominent forecasters, including a former chief economist of the IMF, Olivier Blanchard, predicted that recent rises in interest rates would cause a surge in unemployment. Mr Waller vocally disagreed, and was proved right. This year he foresaw weakness in the labour market that struck in July, and which caused the Fed to take a doveish turn. Over a long period his judgment looks equally sound: compared with colleagues he was doveish in the 2010s, when the economy was weak, and hawkish after the pandemic, as inflation was taking off.

Like Mr Hassett, Mr Waller wants lower rates today. This newspaper is not convinced: inflation is still well above the 2% target and America’s labour market may be stronger than it looks. But there is little doubt that Mr Waller is making his case in good faith, and that under his leadership the Fed’s independence would be secure.

To Mr Trump, that is a bad thing. Yet the president should be careful what he wishes for. His main political problem is high prices, something that excessively loose monetary policy would make worse. And if the central bank’s independence were threatened, investors would revolt, and America’s long-term borrowing costs would rise. Appointing a technocrat rather than a partisan is not just the right choice—it is also in the interests of the Republican Party. ■