One consequence of a Kevin Hassett Fed is likely to be increased market concern around rekindled inflation.

Do note: That’s something different from saying inflation’s guaranteed to take off again with Hassett at the helm. Any number of factors determine the pace of price growth. If there’s a recession, for example, subdued demand will help cap inflation.

But all else equal, the bond market will be skeptical of an openly subservient Fed Chair, and I don’t think I’m being a partisan to suggest Hassett won’t come into the job boasting of much in the way of inflation-fighting credibility.

Everyone knows he’s there to do Trump’s bidding, and it’s not (I repeat not) a safe assumption to conclude that a Hassett Fed will refuse to cut rates if Trump demands it in the presence of, say, four-handle inflation. Hassett on Tuesday tried to reassure markets that he wouldn’t do something that reckless, but Wall Street’s still operating in most cases as though America’s a democracy in the same way it was a decade ago. It’s not.

Yes, Trump’s underwater badly in single-issue polling on inflation, but that never stopped Recep Tayyip Erdogan from compelling CBT to cut rates in Turkey in the interest of propping up growth, and I gotta tell you, folks: Trump’s just as powerful in the US as Erdogan is in Turkey at this juncture. It’s not clear — particularly not with the Supreme Court green-lighting GOP redistricting — that the mid-terms will be free and fair elections.

I don’t think Trump’s as concerned about inflation as the polls would suggest he would or should be. Because, again, I don’t think voters are going to have as much of a say in the mid-terms as a lot of people are (still) inclined to believe. And anyway, Trump’s demonstrated a willingness to lean on the BLS. He fired the agency’s chief and then cited a government shutdown to cancel a CPI report.

So, no, I don’t believe Hassett when he suggests, as he did Tuesday, that 4% inflation would close the door to rate cuts. I’m not even sure we’d know if or when inflation hit 4% again. Does anyone seriously believe Trump, a man who fired the head of the BLS at the first sign of material labor market weakness, would sit idly by as a team of bureaucrats tallied an inflation resurgence?

Anyway, markets are for now still free to express their opinion on all of this (I wouldn’t take that for granted either), and wouldn’t you know it: The term premium’s the widest since September, at 72bps.

As the chart shows, it hasn’t been negative (and for our purposes here, I’m setting aside that it should never be negative in the first place, at least not in theory) since Trump was reelected.

That’s telling you something — namely, that despite Scott Bessent generally keeping the train on the tracks, the bond market does perceive some risk associated with longer-tenor US debt versus just rolling short-term paper.

On November 25, when Bloomberg first reported that Hassett was the clear frontrunner for the Fed Chair job, the term premium was 58bps. So, it’s widened ~15bps since ol’ Kevin became Jerome Powell’s presumed successor.

“We’ve seen a solid term premium rebuild in USTs, which has corresponded to Hassett going to ‘chalk’ as Trump’s Fed Chair pick,” Nomura’s Charlie McElligott said Tuesday, noting that Hassett’s “of course viewed as a POTUS ‘rubber stamp’ on pro-growth, run-it-hot policies.”

When you toss in an early-year fiscal boost and a “broadening-out of corporate earnings,” you’re left to ponder a set of tailwinds which, when considered together and with still-easy financial conditions, “risk embedding ‘sticky higher’ inflation,” McElligott added.