Hassett Backs Residency Rule for Regional Fed Presidents, Predicts AI-Fueled Growth

Key Takeaways

• Hassett supports a minimum three-year residency requirement for regional Federal Reserve presidents.
• He anticipates strong economic growth in 2026 fueled by investment in artificial intelligence.
• Hassett expects the Federal Reserve to cut interest rates at their next meeting.

Kevin Hassett, Director of the National Economic Council, has voiced strong support for Treasury Secretary Steven Mnuchin's proposal to impose a residency requirement on candidates for the presidency of regional Federal Reserve Banks. This measure aims to ensure that diverse regional interests are better represented in monetary policy decisions.

Hassett emphasized the importance of a federal system that allows different regions to express their concerns and interests at the decision-making table. He added that a residency requirement would contribute to strengthening this representation.

Hassett's comments came in response to Secretary Mnuchin's announcement of his intention to push for a new rule requiring candidates for regional Fed president to reside within the district they will oversee for at least three years. This move is part of a broader effort to reshape the Federal Reserve, following criticism from the Trump administration of a "mission creep" extending beyond monetary policy.

Regarding future appointments, Hassett indicated that he had not yet discussed the impact of these guidelines on the approval process for upcoming appointments, which are scheduled for February.

Hassett criticized what he described as the "unfortunate situation" where the right to vote on interest rate decisions is limited to residents of Washington and New York. He affirmed that he had discussed this issue with the Treasury Secretary with the aim of finding solutions without having to dismiss any current officials.

In a related context, Hassett reiterated his expectation that policymakers at the Federal Reserve will cut interest rates at their next meeting, considering the current time opportune to take cautious action to lower interest rates.

Economic Growth Projections

Hassett also predicted a boom in economic growth by early 2026, driven by recovery from the impact of the recent federal government shutdown and the start-up of new factories. He also anticipated a significant increase in productivity driven by investment in artificial intelligence.

Hassett projected that productivity growth could reach 4% next year, noting that the application of AI in the economy is occurring at a much faster pace than the spread of the internet and computers in the 1990s. He predicted that higher productivity would, in turn, drive up wages.

It should be noted that the United States has not experienced productivity growth of 4% since 1999 (excluding 2009 and 2020 due to the significant economic recession). In the past half-century, growth rates have only reached or exceeded 4% in six years.

Hassett concluded by saying that unless some unexpected disruption occurs, the United States will experience a "golden year in economic history." He added that he would be "disappointed" if the growth rate in the first and second quarters of next year were only 3%, considering it easy to achieve a growth rate that is 1% higher.