European Central Bank officials are growing increasingly jittery as Kevin Hassett — a close ally of President Donald Trump with very little central bank experience — emerges as the frontrunner to lead the U.S. Federal Reserve.

A report last week by Bloomberg described Hassett, whom Trump picked at the start of the year to head the White House National Economic Council, as the “emerging front-runner” to replace current Fed Chair Jerome Powell. 

Hassett’s rise has set off alarm bells in Frankfurt. European officials fear Hassett, under pressure from his boss in the White House, could push the Fed into cutting interest rates far more aggressively than Powell — even though that might risk unleashing another wave of inflation that could ripple out across the world.

“If markets obtain a firm belief that the new [Fed chair] is subject to fiscal or any other dominance at the expense of the inflation target, there will be capital flight from the U.S. and an erosion of the value of the dollar with serious consequences worldwide — including higher inflation,” one ECB official said. 

Like others interviewed for this story, the official spoke on condition of anonymity to discuss internal deliberations.

“There is a possibility that the U.S. will have some inflationary bias … because of the political involvement,” a second ECB official warned.

The Bloomberg report came just before Thanksgiving, after Treasury Secretary Scott Bessent had whittled down a long roster of candidates into a shorter list. Later during the holiday weekend, aboard Air Force One, Trump told reporters that “I know who I’m gonna pick,” but he told a cabinet meeting on Tuesday that he wouldn’t announce his decision until early in the new year. 

Prediction markets such as Polymarket have made Hassett the odds-on favorite since then. 

“For Trump, Hassett would be the best choice,” a third ECB official agreed, noting the candidate’s political proximity to the White House. 

Pressure campaign

Trump has repeatedly attacked the Fed since returning to office in January, blasting Powell — whom he appointed as Chair during his first term — as a “numbskull” and a “major loser” for not cutting interest rates more quickly.

The Fed withstood the pressure until September, when signs of a slowdown in the labor market emerged. It cut rates again in October, but Powell upset those expecting more easing soon by warning that another cut in December is by no means “a done deal.” Since then, several of his colleagues on the Federal Open Markets Committee have expressed reluctance to cut any further in December, pointing to an inflation rate stuck above the 2 percent target.

Usually, when the labor market weakens, so does inflation, but that hasn’t happened this time. At both of his last two press conferences, Powell noted that the Fed’s dual mandate of keeping prices stable while pursuing full employment were currently “in tension” with each other. 

Hassett has presented a very different view, telling CNBC in November that “inflation has come way down” from the 5 percent that it averaged during Joe Biden’s presidency andthat “the trajectory is really, really, really good if you look at it.” That’s despite U.S. headline inflation actually rising in four of the last five months. 

My good friend Ben

That is why many in Frankfurt see alternative candidates — including the dovish but experienced Fed Governor Christopher Waller — as far safer choices. Also still in the running, according to various sources, are former Fed Governor Kevin Warsh, BlackRock fixed-income chief Rick Rieder, and sitting Governor Michelle Bowman.

For decades, relations between the Fed and the ECB have been collegial and cooperative. Members of the small, globally connected circle of central bankers have long seen themselves as a kind of fraternity. During the height of the 2008 financial crisis, then-ECB President Jean-Claude Trichet liked to emphasize that closeness by repeatedly referring to Fed Chair Ben Bernanke as “my good friend Ben.”

More recently, as Powell has come under fire from the White House, European colleagues have rushed to defend him.

Lagarde told a Washington Post event in April that “I have … enormous respect for Chair Powell, and I know that he’s doing exactly what’s expected of him to serve the American people.” 

Deutsche Bundesbank President Joachim Nagel echoed such comments more recently. Outside the eurozone, Bank of England Governor Andrew Bailey — another central banker anxious about the risk of financial volatility — called Powell “a man of the utmost integrity.”

With Powell’s departure looming, ECB officials increasingly fear that this long-standing, trust-based relationship may be nearing its end, a fourth official told POLITICO. These concerns have already begun to influence the ECB’s strategic considerations in other areas, including liquidity policies and its own leadership succession.

The ECB declined to comment.

(Additional reporting by Ben Munster)