President Donald Trump has choreographed a reality TV-like process in picking the next chair of the Federal Reserve. Another less-visible interviewer has a say in the process as well: Bond investors.
The bond market demonstrated its enduring influence over the U.S. government when a spike in bond yields compelled Trump to pause his “Liberation Day” tariffs in April. He’d acknowledged investors had gotten “a little queasy” after a sell-off pushed yields on 10- and 30-year Treasury notes up by half a percentage point. That doesn’t sound like much, but it was the biggest spike in decades.
“Bond markets are the Mike Tyson effect,” Kent Smetters, a finance professor at the University of Pennsylvania, told Quartz in October, referring to the famous boxer. “You can have your big, beautiful plan until you get punched in the face.”
Now bond investors are weighing in as Trump mulls who will replace Fed Chair Jerome Powell once his term is up in May 2026. So far, no knockout punch from the bond market seems imminent. For much of the fall, the president has appeared inclined to nominate Kevin Hassett, one of his top economic aides, to the critical monetary policy post.
U.S. Director of the National Economic Council Kevin Hassett (R). Photo by Chip Somodevilla/Getty Images
Bond yields, though, rose 0.1% in the first week of December, according to Chandler Asset Management. The firm attributed the increase to growing recognition among bond traders that Hassett was the frontrunner to helm the Fed.
Bond yields dictate what investors believe is the fair interest rate to charge the U.S. government in purchasing Treasury notes and effectively lending it money. U.S. Treasuries are widely viewed as a rock-solid investment with guaranteed — although minor — returns. Ten-year treasuries are connected to the amount people pay on car loans, mortgages, and more.
Hassett has raised concerns among Fed watchers and other monetary policy analysts that he could erode the traditional separation between the central bank and the executive branch. The Financial Times reported earlier this month that bond investors had warned the Treasury Department against picking Hassett.
Kevin Warsh, former governor of the US Federal Reserve. Tierney L. Cross/Bloomberg via Getty Images
Similar to Trump, Hassett has launched stinging attacks and accused the central banks of allowing politics get in the way of significantly lower interest rates. “You can assert you’re going to be independent, you can assert you’re going to be nonpartisan, but in the end, the proof is in the pudding,” Hassett said in a September CNBC interview.
Now Trump has vacillated between Hassett and Kevin Warsh, a former Fed governor who was passed over for the job in Trump’s first term. For the time being, the bond market isn’t overly spooked.
Bond yields on ten-year Treasury notes are hovering at 4.14% as of Wednesday. Whether a Mike Tyson moment materializes will be left for 2026.
