Kevin Hassett's rise as the frontrunner to replace Jerome Powell in 2026 has caused unexpected divergence in the financial markets: crypto traders are celebrating, while bond investors warn of interest rate cuts that could lead to instability.
The differences are becoming sharper as new reports detail personal concerns sent to the U.S. Treasury.
The bond market warns of severe cuts.
Bond investors have privately told the Treasury that they are concerned Hassett will push for rapid interest rate cuts driven by politics, according to the Financial Times.
A discussion held in November with major Wall Street banks, large asset managers, and members of the Treasury's borrowing advisory committee revealed stable fears: a Fed run by Hassett might prioritize government demands over controlling inflation.
Reports indicate that investors are concerned that Hassett may support interest rate cuts indiscriminately even with inflation above the 2% target.
Participants in the meeting also pointed to a previous briefing where Hassett emphasized politics unrelated to the market, raising questions about the Fed's independence.
The prediction market is currently giving about a 75% probability that Hassett will become the next Fed chair, significantly higher than competitors Christopher Waller and Kevin Warsh.
The crypto market has an opposing view; traders interpret Hassett's stance as a green light for faster releases, increasing liquidity, and a weakening USD, which is a combination that supports Bitcoin, Ethereum, and highly volatile altcoins as in the past.
Hassett has publicly stated that he would cut interest rates immediately if he were leading the Fed, a stance that is clearly in contrast to Powell's data-driven cautious approach, which keeps real yields high and risks low.
His work history also inspires the digital asset sector; Hassett has previously worked as an advisor to Coinbase and holds over 1 million USD in COIN stock, raising questions about conflicts of interest and expectations for a more crypto-friendly environment.
Juan Leon, a strategist from Bitwise, recently commented that the Fed led by Hassett will be a powerful support, citing writings on pro-crypto regulation and his history of criticizing current interest rates as too high.
Political pressures increase the tension.
President Trump has increased his criticism of Powell and has hinted multiple times that he has already made a decision regarding the next Fed chair, expecting an announcement of a successor soon.
Meanwhile, reports suggest that Trump may promote Treasury Secretary Steven Mnuchin to be his top economic advisor if Hassett is appointed, signaling the administration's effort to align economic leadership with a more aggressive growth agenda.
Political dynamics are increasing concerns in the bond market. Investors fear a scenario where the Fed shifts to rapid easing while inflation remains stubbornly high. Such a move would undermine the credibility of the central bank as deficits and bond issuance remain at historically high levels.
Hassett's candidacy has caused a rare divergence in the market, with crypto pricing in expectations of improved liquidity while bonds brace for policy risks and volatility.
With Powell's term ending in May 2026 and the final round of interviews underway, the upcoming week will set expectations in both monetary policy and the digital asset market.
The official nomination is expected to occur early next year; until then, investors will continue trading considering the increased likelihood of a Fed that operates freely and aligns with crypto, and the backlash from traditional finance that comes with it.
