Bond yields jump after Trump hints Hassett won’t be named Fed chair as Wall Street sees hawkish Warsh having easier path to replace Powell

President Donald Trump on Friday said he would like to keep his top economic adviser, Kevin Hassett, at the White House rather than potentially nominate him to replace Jerome Powell as chair of the Federal Reserve.

“I actually want to keep you where you are, if you want to know the truth,” Trump said at a White House event, when he saw Hassett, director of the National Economic Council, in the audience. ”I just want to thank you, you were fantastic on television the other day.”

Trump’s comments, while not clearly definitive, have upended expectations around the extensive search the White House has undergone to find a new Fed chair, one of the most powerful financial positions in the world. The president’s remarks have boosted the prospects for Kevin Warsh, a former Fed governor and already a top contender for the position.

Hassett has generally been seen as the front-runner in the race to replace Powell because he has worked for Trump since his first presidential term. Last month, Trump referred to Hassett as a “potential Fed chair.”

Powell’s term as chair will end May 15, though he could take the unusual step of remaining on the board as governor afterward. Trump appointed Powell in 2018 but soon soured on him for raising the Fed’s key interest rate that year.

Warsh’s candidacy has also likely been boosted by the Justice Department’s subpoenas of the Federal Reserve last week, revealed Sunday in an unusually direct video statement by Powell. The Fed chair charged that the subpoenas were essentially punishment for the central bank’s refusal to lower interest rates as sharply as Trump would like.

The criminal investigation — a first for a sitting Fed chair — sparked pushback on Capitol Hill, with many Republican senators dismissing the idea that Powell could have committed a crime. The subpoenas related to testimony Powell gave last June before the Senate Banking Committee that touched on a $2.5 billion building renovation project.

The backlash has intensified concerns in the Senate, analysts say, that the Trump administration is seeking to undermine the Fed’s independence from day-to-day politics. That, in turn, may reduce Hassett’s prospects.

The brouhaha over the subpoenas is “making it harder to confirm Hassett, who is distinctively close to the president,” Krishna Guha, an analyst at investment bank Evercore ISI, wrote in a client note. “Warsh is trusted by Senate Republicans and would be much easier to confirm.”

Yet Warsh, historically, is known as a “hawk,” or someone who traditionally supports higher interest rates to ward off inflation, as opposed to a “dove,” or someone who prefers lower borrowing costs to spur hiring and growth.

The yield on the 10-year Treasury note rose Friday, to just above 4.2%, from about 4.17% Thursday. The increase likely reflected a sense that Warsh’s chances had improved, and as a result the Fed would be less likely over time to cut rates than under a Hassett chairmanship.

This story was originally featured on Fortune.com