By Martin Baccardax

Uncertainty tied to President Donald Trump's choice to replace Jerome Powell as Chairman of the Federal Reserve is adding to market angst over the path of interest rates into the coming year and preventing the stock market from powering higher over the final weeks of December.

Trump told Politico, in an interview published Tuesday, that pushing for an "immediate" rate cut would be a key litmus test for any potential Fed Chair. The president has long advocated for lower interest rates, saying they're supercharge the domestic economy, unlock a stagnant housing market and lower borrowing costs for the federal government.

But his language in the Politico interview suggests he hasn't made a final decision on his Fed Chair appointment, leaving markets to wonder if front-runner Kevin Hassett will replace Powell in the spring, or if another candidate has met the president's most important criterion for the role.

Trump has said he'll announce his choice early next year, although he hinted last week that he had already decided.

His views may have changed, however, when Hassett, currently the White House National Economic Council Director, told CNBC on Monday that it would be "irresponsible" for the Fed to map out a medium-term rate strategy without first having seen and studied the incoming economic data.

"I think that Chairman Powell agrees with me on this one," he said. "We should probably continue to get the rate down some, but prudently, with an eye on the data."

Trump's desire for lower rates, set against the ongoing stickiness in headline inflation pressures and a tax and spending plan that has the U.S. on pace to borrow an additional $2 trillion in the current fiscal year, is playing havoc with the bond market.

Benchmark 10-year Treasury note yields have risen by nearly 20 basis points over the past two weeks, and were last pegged at 4.174%. Longer dated 30-year bonds breached the 4.8% mark earlier this week, and were last changing hands at 4.799%.

Rising government bonds yields in Japan, and recent hawkish comment from ECB officials in Europe, are also adding downward pressure on Treasury bond prices.

The Fed is nearly certain to lower its benchmark lending rate by a quarter of a percent on Wednesday, taking it to between 3.5% and 3.75%, but markets remain divided as to whether it will signal further near-term reductions.

But without a clear message as to who will be the next Fed Chair, and whether that choice will resist pressure from the White House, investors can't set a reliable benchmark from which to value equities.

The S&P 500's December rally, meanwhile, remains on hold, having risen just 0.5% since its pre-Thanksgiving close.

Wall Street's biggest banks and investment groups, meanwhile, project the S&P 500 rising to around 7600 points by the end of 2026, based on forecasts collected by Barron's, implying an 11% gain from current levels.

That would mark the weakest annual gain in an advancing market since 2016. It would also mark a notable contrast to the LSEG's solid 14% forecast for corporate earnings growth, suggesting valuation concerns remain embedded in investor's minds.

Lower interest rates tend to support stock valuations, as they produce a higher present value for future profits. The same holds true for investors using the 'dividend discount model' to adjust for shareholder returns.

Further interest rate uncertainty lies in how Powell himself will react to his replacement, should he choose to stay on the Fed's Board of Governors until 2028 as he is entitled.

Longer term issues regarding Fed independence were also revived by a case before the Supreme Court that seeks to grant president Trump the right to fire members of the Federal Trade Commission.

Reporting suggests some Justices were persuaded by the administration's case, which seeks to overturn a 90-year old precedent known as Humphrey's Executor that protects independent agencies from the executive branch.

A ruling in the president's favor in June could, potentially, open the door to allowing him to fire members of Fed's Board of Governors, or indeed the Chairman himself.

Talk about cutting.

Write to Martin Baccardax at martin.baccardax@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

December 09, 2025 13:54 ET (18:54 GMT)

Copyright (c) 2025 Dow Jones & Company, Inc.