Why Kevin Hassett as Fed Chair isn't automatically bullish

Investing.com -- In its latest note, Sevens Report said that stocks have rallied over the past two weeks, a move that has been driven largely by expectations for a more dovish Federal Reserve, but the firm also highlighted another potential driver.

That shift began with “dovish comments from New York Fed President Williams” and soft labour and inflation data, which pushed the probability of a December rate cut from below 50% to “nearly 100%.”

But another catalyst, President Trump’s near-confirmation that he will nominate Kevin Hassett as the next Fed chair, has also fuelled hopes for lower interest rates in 2026, according to Sevens.

Of the finalists, Sevens noted that “Hassett is viewed as the most dovish,” leading investors to assume a more accommodative stance once he replaces Jerome Powell in mid-2026.

However, Sevens cautioned that “nothing in markets is free.”

While equities welcomed the prospect of a more dovish chair, bond markets reacted quite differently.

The 10-year Treasury yield rose 10 basis points last week, partly on hawkish BOJ commentary but also because “bond markets are wary that if Hassett is too dovish… then inflation will return.”

That scenario, Sevens warned, risks a repeat of the 1970s, when an “Arthur Burns-led Fed” oversaw “inflation on again/off again” and a prolonged economic malaise.

In that sense, the firm believes that Hassett’s perceived dovishness is not automatically bullish.

If markets believe Fed independence is compromised, even marginally, “the Treasury markets will drop and yields will rise,” Sevens said, potentially overwhelming any benefit from lower policy rates.

The report emphasised that Hassett, despite political criticism, “has not demonstrated throughout his lengthy career that he would sacrifice Fed independence.”

Sevens argued that preserving that independence is “much more important to supporting stocks than whether fed funds end 2026 at 3.625% or 2.875%.”

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