White House adviser Hassett tells WSJ CEO Council: ‘plenty of room’ to cut rates

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By Ann Saphir

WASHINGTON, Dec 9 (Reuters) – White House economic adviser Kevin Hassett, the front-runner to be the Federal Reserve’s next chair, told the WSJ CEO Council on Tuesday that there is “plenty of room” to cut interest rates further, though he added that if inflation rises the calculation may change.

“What we have to do is recognize that like in the ’90s, we’re in a potentially extremely transformative time,” Hassett said at the WSJ CEO Council, referring to the possibility that artificial intelligence can supercharge economic growth without overheating the economy. “If the data suggests that we could do it then –  like right now, I think there’s plenty of room to do it.”

Asked what he would do if President Donald Trump wanted him to cut rates and he did not think it was the right thing to do, he said “if inflation has gone from 2.5% to 4%, you can’t cut rates then,” and that he would adhere “to my judgment, which I think the president trusts.”

Trump earlier on Monday told Politico he’d make support for immediately slashing interest rates a litmus test in his choice of a new Fed chair. Hassett, echoing Trump’s own critique of the Fed’s decision not to slash rates further, accused the central bank of acting politically.

  “I think the most important job that the Fed chair has is to be looking at the economic data and to avoid being part of politics,” he said.

The Fed earlier on Tuesday began its last policy-setting meeting of the year, and on Wednesday at the meeting’s close is expected to lower rates by a quarter of a percentage point for a third time this year but to signal little further easing next year. 

Analysts have raised questions over whether Hassett’s appointment to the Fed could undercut what is widely seen as the Fed’s longstanding independence from short-term political pressures under Fed chairs since Paul Volcker, who led the central bank in its deeply unpopular but ultimately successful campaign of interest-rate hikes to fight the entrenched inflation of the 1970s.

A number of Fed presidents have expressed concern about cutting rates while inflation is still above the Fed’s 2% target and headed up, and Wednesday’s decision is expected to draw some dissents that would underscore that division.

Hassett expressed confidence that he will be able to win backing for his views because he is “fact-based.”

“I’ve got lots of friends at the Fed that are on both sides,” said Hassett, who worked as an economist at the Fed for about five years in the 1990s before becoming a long-time adviser to Republican officials and conservative think tanks. More recently he has aligned his views closely with Trump’s economic vision.

On Tuesday, asked about the potential for Trump’s plan to send $2,000 checks to Americans to be inflationary, he said that Trump’s tariffs and tax cuts had helped reduce the U.S. deficit, creating “more room to do things that are stimulative.” 

Hassett said he has a “very strong” relationship with Fed Chair Powell and also knows Fed Vice Chair Philip Jefferson, another appointee of President Joe Biden, from their time in the early 1990s teaching at Columbia University. 

(Reporting by Ann Saphir; Editing by Chizu Nomiyama and Andrea Ricci )