Bond investors have informed the US Treasury that they are concerned about Kevin Hassett potentially being nominated as Federal Reserve chair, fearing he might aggressively cut interest rates to align with Trump's preferences.

According to multiple informed sources, Treasury officials solicited feedback on Hassett and other candidates during one-on-one conversations with executives from major Wall Street banks, asset management giants, and other key participants in the US bond market.

These sources stated that the discussions took place in November, prior to Treasury Secretary Beshent initiating a second round of interviews to find a successor for Powell. The Treasury stated that it "regularly communicates with various market participants and investors about significant developments and dynamics in the US Treasury market and broader financial markets." It added: "In discussions with key stakeholders, the distribution of market expectations for potential asset outcomes across the five potential Fed chair candidates is extremely narrow."

As the White House's chief economic official, Hassett has become a leading candidate for the position in recent weeks, after Trump and Beshent narrowed down the initial list of 11 potential candidates.

On Tuesday, Trump said he plans to announce his nominee for Fed chair "early" next year and hinted that Hassett is a "potential" contender. After he mentioned Hassett, the US dollar briefly fell.

The White House told the Financial Times: "The president will continue to nominate the most qualified individuals to serve in the federal government, and any discussion of potential nominees before the president himself announces them is meaningless speculation." The Treasury added that it "believes (Trump's) choice will serve the American people well."

Market participants' doubts about Hassett reflect broader Wall Street anxiety over the change in Fed leadership as Trump prepares to nominate a new central bank chief. Some seasoned bond market participants prefer other candidates, such as BlackRock's Rick Rieder and Fed Governor Christopher Waller, who are seen as more independent and distant from Trump than Hassett.

Multiple market participants who communicated with the Treasury expressed concern about Hassett's close relationship with Trump. Trump has consistently insisted on significant rate cuts and called Powell a "stubborn mule" for the central bank's only modest reduction in borrowing costs this year.

According to three informed sources, bankers and investors worry that Hassett might advocate for indiscriminate rate cuts even if inflation remains persistently above the Fed's 2% target.

"No one wants to experience a 'Truss-style shock,'" one market participant said, referring to the turmoil in the UK bond market triggered by then-Prime Minister Liz Truss's unfunded tax cut plan in 2022.

With US inflation potentially rising next year, the prospect of a dovish Fed chair is seen as particularly concerning by large bond management institutions. The Fed's preferred inflation measure recorded 2.7% in August.

One market participant stated that loose monetary policy combined with higher inflation could trigger a sell-off in long-term government bonds.

The sources added that some market participants also doubt Hassett's ability to gain support from a divided Fed board and build consensus on interest rate decisions.

According to two informed sources, participants in these conversations included members of the Treasury Borrowing Advisory Committee (TBAC), composed of Wall Street bond giants that advise Beshent on market and issuance matters.

These individuals said that when Hassett, an economist whose career has focused on tax policy research, met with the TBAC earlier this year, he spent little time discussing markets and instead promoted White House priorities, including discussions on Mexican drug cartels.

As a Washington insider, Hassett served as a senior economic advisor to the presidential campaigns of John McCain, George W. Bush, and Mitt Romney before joining the White House during Trump's first term as chair of the Council of Economic Advisers. He also worked at the conservative think tank American Enterprise Institute and served at the Fed, where former colleagues remember him as ambitious.

Robert Tetlow, a senior policy advisor who recently left the Fed, said Hassett struck him as "smart, eloquent, and confident." However, there is widespread concern that his close ties to Trump could threaten the Fed's independence. Trump has repeatedly attacked the US central bank over the past year.

Former Fed economist and current chief economist at New Century Advisors, Claudia Sahm, said: "Kevin Hassett is fully capable of doing the job of Fed chair. The question is, which version of him would show up? The Kevin Hassett who was actively engaged in the Trump administration? Or Kevin Hassett the independent economist?"

John Stopford, head of multi-asset income at asset manager Ninety One, added: "I think the market sees him as a Trump puppet, which would somewhat erode the Fed's credibility."