Wall Street frets over Hassett as potential Fed chair

0:02Good morning from the Financial Times. Today is Thursday, December 4th, and this is your FT News briefing. Bond investors aren't thrilled with the leading Fed chair candidate, and HSBC's search for a chair is finally over. Plus, the EU has a plan for frozen Russian assets, but it's not going to make everyone happy. One of the striking things that came out when the commission made its proposal is that it will not require unanimity. I'm Mark Filippino, and here's the news you need to start your day.

0:41Yesterday, we told you it might be a while until we know who will replace Federal Reserve Chair Jay Powell when his term ends next May. But Wall Street has a habit of being a bit jumpy. And true to form, investors in the$30 trillion U.S. bond market have already expressed deep concerns to the Treasury Department over the frontrunner, Kevin Hassett. He's the White House's top economic official and has served as senior economic advisor to past Republican presidential campaigns. Kate Duguid is the FT's U.S. Markets Editor and has the scoop on this. Hi, Kate. Hi. So first of all, what went down and when?

1:16About two, three weeks ago, prior to the final round of interviews with Fed chair candidates, the Treasury Department reached out to big bond investors to solicit some feedback about the candidates that were going forward. So this includes big Wall Street banks. It includes big asset managers, among other institutions. We also know that some of the people who are asked are members of the Treasury Borrowing Advisory Committee. This is a private market group that advises the Treasury Department on issuance, on market issues. And it's made up by people who are sort of luminaries in the Treasury market, people who are in big positions of power with a lot of market expertise.

1:59And what we know is that in a number of these conversations, these bond market participants expressed concern about Kevin Hassett's nomination for FedShare. Got it. And why are investors so concerned about Hassett? Kevin Hassett is seen as a Trump loyalist. He's the White House's top economic advisor. He worked in the first Trump administration. He is seen as somebody who's very close to President Trump. and the things that he has said publicly suggest that he would be prepared to cut interest rates quite a lot in the near term. The thing that these bond market participants were worried about is there might be a situation in which we have an ultra-dovish Fed chair and we also have inflation rising.

2:44That could lead to real problems in the economy and it could lead to huge, huge, huge problems in the bond market. You know, nobody wants a Liz Truss moment. So that was sort of the main concern. There was also some concern about whether he would have the capacity to build coalitions within the Fed and corral everybody. It's a consensus-based organization, and typically the Fed chair is sort of the leading voice. But if somebody comes into the Fed who has very, very different views from the rest of the board, it might be more difficult for them to get their point across to the committee as a whole.

3:21Is it normal for the Treasury Department to seek this kind of feedback on a Fed chair nominee? Yes. The Treasury Department has always sort of stayed in close touch with market participants to hear about what trading conditions are like, what's going on in the market. But I will say that Secretary Scott Besant, both he personally and his Treasury Department, have a uniquely close relationship with market participants. Secretary Besant himself was at hedge funds for a long time prior to his career in government. So he is known as somebody who has more conversations with market participants than his predecessors.

4:00So, Kate, I guess the big question is, could these concerns from Wall Street be enough to derail Hassett's chances of becoming the next Fed chair? I think the important thing to remember is that this decision is ultimately President Trump's. though Secretary Besant was involved in the interview process. It is not his decision. It is really the decision of President Trump. And frankly, President Trump has displayed a willingness in the past to make policy decisions that the market doesn't necessarily like. So it is entirely possible that this reaction from bond market investors would not be enough to sway President Trump.

4:36That's the FT's U.S. Markets Editor, Kate Duguid. Thanks, Kate. Thank you so much.

4:47And now on to a different personnel story. HSBC finally has a new chair. Interim chair Brandon Nelson has gotten the nod. He's a former partner at KPMG and has been acting as chair at HSBC since early October. The bank has been rushing to appoint someone to the role since Sir Mark Tucker announced he would step down much earlier than expected. And the process has been pretty hectic. Sources said the board was divided on other candidates' suitability just before landing on Nelson.

5:23The EU has come up with a last-ditch plan to try to divert some of Russia's frozen assets for Ukraine. The plan would try to bypass opposition from Russia-friendly countries like Hungary and Slovakia in order to ensure Kiev's economic survival. The FT's Paola Tama in Brussels joins me now to discuss this. Hi, Paola. Hello, Mark. So how exactly would this plan work? Well, the commission has said that it plans to use about 210 billion euros of Russian state frozen assets in the bloc to make a loan for Ukraine that would help its finances for the coming two years. It will go to the financial institutions that hold these assets, primarily Belgian central security depository, Euroclear, and ask them to essentially loan them to the EU.

6:10which will then on loan them to Ukraine on the premise that Kiev will not have to pay back until Russia has paid reparations in the context of a peace deal. Now, financially and legally, the plan is very fraught. That's why it's been in the making for months. And one of the striking things that came out when the commission made its proposal is that it will not require unanimity. So there is a way to go forward with this plan in Brussels' mind without requiring EU-27 consent. Yeah, I'm glad that you brought that up because there would be potentially opposition from countries like Hungary, right?

6:49Indeed, Hungary has already ruled out any further support of Ukraine. And that's precisely why the EU has chosen this peculiar legal construct to go ahead with its plan. And it's basically saying, well, look, there is a risk that Russia's invasion of Ukraine and Russia's continued hybrid threats in Europe are going to wreak havoc on our economy. And this gives us emergency power to circumvent this unity military requirement to keep Russia's assets locked indefinitely. So that is until there is a peace settlement, until Russia pays reparations. Whereas currently, the assets have to be sanctioned every six months to be kept under lock.

7:33Now, Hungary probably doesn't come as a big surprise as a country that would push back on a plan like this. But Belgium, also reluctant to approve the use of these frozen assets. Absolutely. Belgium is in the hot seat because it sits on around 185 billion of these assets, so the lion's share. And its prime minister has opposed this plan, calling it fundamentally wrong, and has said that it impedes peace efforts, that it would potentially melt down Europe's financial system and primarily that it would lay at Belgium's door all legal retaliation and non-legal retaliation from Russia. And so one of the demands from Belgium was to get guarantees from the EU, from other member states, that if suddenly Russia shows up with a claim or if the assets are due back to Russia as part of the peace process, it would not solely be on the hook.

8:31And the commission has proposed a way to address all of Belgium's concern, but it remains to be seen whether that's enough for it to get on board. Yeah. What are you looking out for as this plan develops? Anything in particular? Well, we have two weeks until a summit of EU leaders, which is going to be the showdown moment where we will know how EU leaders intend to continue funding Ukraine. There is another option that the Commission has proposed and that entails using its own EU budget to raise cash to loan to Ukraine. So that's the traditional way that the EU has been using to fund Kiev. But that option requires unanimity.

9:13And so a majority of countries do support this so-called reparation loan, including using Russia's frozen assets. But the issue there is that they cannot do it without Belgian support. So it's really Belgium in the hot seat. If this legal basis flies, they have found a way to isolate Russia-friendly countries, but they cannot really do it in the face of opposition from Belgium. That's the FT's Paula Tama in Brussels. Thanks, Paula. Thank you, Mark. By the way, we want to hear from you about how you're spending the holidays and what you're spending on the holidays. Is the economy affecting your financial decisions this season?

9:54Are you buying fewer gifts or planning less travel? Let us know. Send me a voice memo with your name and where you're from and how you're planning your budget during the holidays. My email is in the show notes and we may even play your voice memo on the show. You can read more on all these stories for free when you click the links in our show notes. This has been your daily FT News Briefing. Check back tomorrow for the latest business news. Thank you.