Will the Era of Low Interest Rates Return?

What has been Powell’s role so far

Powell will be remembered through three key phases:

1. COVID expansion (2020–2021)
   • Zero interest rates
   • Massive QE
   • Market-supporting liquidity
2. Inflation shock (2022–2023)
   • Sharp pivot to restrictive policy
   • Fastest rate-hiking cycle in decades
   • Priority: inflation control over asset prices
3. “Higher for longer” phase (2024–2025)
   • Keeping rates at high levels
   • Balancing inflation, labor market, and financial stability
   • Clear message: the Fed will not rescue markets at any cost

This last phase is crucial – it created a new reality where cheap money is no longer the baseline, but the exception.

What a Powell replacement would mean

Replacing the chair does not change the Fed’s mandate – price stability and maximum employment. But it could change:

• Speed of reaction
• Tolerance for inflation
• Priority between the economy and markets

Historically, more “dovish” chairs:

• React faster with rate cuts during slowdowns
• Are more willing to tolerate moderate inflation
• Pay more attention to financial markets as a channel for the economy

Is a “Low Rates 2.0” scenario possible?

Important distinction: low rates ≠ zero rates

Why a repeat of 2010–2021 is unlikely:

• Higher structural US debt
• Geopolitical fragmentation (de-globalization)
• Higher spending on defense, energy, and industrial policy
• More persistent inflationary pressures than the previous decade

What makes rate cuts likely:

• US slowdown or recession
• Credit or corporate bubble bursting
• Financial instability (banking sector, commercial real estate)
• Political pressure to support the economy

Ultimately, lower rates are possible, but most likely:

• Slower
• More moderate
• Without a return to “free money”

How markets would react

1. Stocks

• Growth and Tech would benefit the most
• Lower rates increase the present value of future earnings
• Nasdaq and AI-related companies would be direct beneficiaries

Risk: if cuts are due to recession, initial gains may be short-lived

2. Bonds

• Long-term bonds gain on expected cuts
• Yield curve could steepen
• Investors seek duration exposure

3. Dollar

• Softer policy → weaker USD
• Positive for commodities, emerging markets, and gold

4. Gold

• Low real rates + weak dollar = strong environment for gold
• Historically gold reacts positively to a dovish Fed

5. Crypto and risk assets

• Liquidity is key
• Lower-rate expectations often lead to gains in crypto and high-beta assets

Why markets react before the actual change

Financial markets do not wait for events – they discount them. Expectations and sentiment trade ahead of time.

• Rumors of a replacement
• Statements from potential successors
• Changes in Fed rhetoric

Can lead to:

• Falling yields
• Sector rotation
• Sharp shifts in market expectations

Replacing Powell does not guarantee a return to cheap money, but could mark the start of a new cycle – more flexible, politically sensitive, and asset-friendly.

The key question for investors is not “will rates fall?”, but:
“What will be the new normal level?”

Scenarios: Powell’s replacement and interest rate markets

Base case (most likely)

• Controlled cuts, without returning to cheap money
• Powell replaced / term expires without abrupt policy shift
• New chair with a moderate (centrist / mildly dovish) profile
• Inflation remains above 2%, but under control
• Economy slows without deep recession

Rate policy:

• Gradual cuts (50–100 bps over 12–18 months)
• Terminal rate remains structurally higher than 2010–2020

Market reaction:

• Stocks: moderate rise, rotation to quality growth
• Bonds: falling yields, long-term gains
• USD: slightly weaker
• Gold: steady upward trend
• Crypto: selective risk-on

Bull case

• “Dovish Fed + slowdown without collapse”
• Replacement with clearly dovish chair
• Inflation drops faster than expected
• Political pressure to stimulate growth
• Fed prioritizes growth and markets

Rate policy:

• Aggressive cuts (150–250 bps)
• Significant easing of financial conditions

Market reaction:

• Stocks: strong rise led by Tech / AI / Growth
• Bonds: powerful long-term rally
• USD: clear weakening
• Gold: new historic highs
• Crypto: explosive risk-on cycle

Bear case

• Replacement during a crisis – rates fall, but markets suffer
• Powell replaced amid recession, credit collapse, or banking/CRE crisis
• Cuts are reactive, not preemptive

Rate policy:

• Rapid, forced cuts
• Possible QE restart

Market reaction:

• Stocks: initial drop, high volatility
• Bonds: safe haven, strong gains
• USD: mixed (risk-off support and initial rise)
• Gold: strong safe haven
• Crypto: high volatility, initial drop

Powell replacement and Trump’s choice: Kevin Hassett as likely Fed chair – what it means for rates and markets

Political moment already priced by markets

While the official decision for the next Fed chair hasn’t been announced, markets rarely wait for formal confirmation. By late 2025, consensus is forming around Kevin Hassett – long-time economic advisor to Donald Trump and a key figure in his economic team.

According to major international media and market participants, Hassett is among the main candidates interviewed by Trump, along with more institutional figures like Kevin Warsh and Christopher Waller. The difference: Hassett is politically the closest and most predictable choice for an administration focused on economic growth, markets, and debt sustainability.

Who is Kevin Hassett – and why markets see him as “dovish”

Hassett is not a traditional central banker from the Fed system. He is:

• Former chair of the Council of Economic Advisers
• Economist with a clear pro-business philosophy
• Advocate of lower taxes, lighter regulation, and growth stimulus

For the Fed, this means:
Higher sensitivity to economic slowdown and financial markets, rather than strict adherence to inflation orthodoxy.

Hassett is not a “reckless dove,” but prioritizes growth over restriction, especially in a high-debt, politically pressured environment.

What the Fed under Hassett would mean

1. Rate policy: lower, but not zero rates
   Most likely scenario:

• Faster start of rate-cut cycle
• Greater tolerance for inflation above 2%
• Abandonment of the “higher for longer” doctrine

This is not a return to 2010–2021, but a new “normal” with lower, yet positive real rates.

2. Communication: softer tone, fewer shocks
   One key criticism of Powell: aggressive and often market-destabilizing communication

Under Hassett:

• Focus likely on financial conditions
• Clearer signals
• Fewer surprises

For markets: lower volatility and higher risk appetite

Market reactions:

Stocks

• Technology, AI, Growth – main beneficiaries
• Higher valuation multiples
• Potential new risk-on cycle and upward trend

Markets would react at nomination, not at the first cut.

Bonds

• Strong interest in long-term maturities
• Falling yields
• Yield curve normalization

Dollar

• Softer policy = structural downward pressure on USD
• Positive for commodities and emerging markets

Gold

• Low real rates + political risk
• Supportive environment for new highs

What Hassett will not do

• Will not fully sacrifice Fed independence
• Will not “print money” without reason
• Will not ignore inflation if it accelerates sharply

But reaction threshold will be lower than under Powell.

What this means for traders and investors
If Trump chooses Kevin Hassett as Fed chair, it will be:

• Market-positive signal
• Start of a softer rate cycle
• Strategic shift in favor of assets and renewal of upward trends in stock and crypto markets

The key question is no longer “will rates fall,” but: How fast and at what inflation level will the Fed act?

Under Hassett, the answer is clear: sooner than markets have been accustomed to in recent years.