Trump announces Kevin Warsh as Fed Chair.
So let’s think this through.
What we know about Warsh is that:
- Inflation is his enemy (at least in the past) this would magnify inflation concern for Fed.
- Supports tighter monetary policy to get job done.
- Based on above^^ he may be another “threat” markets have to navigate around. He’ll either threaten inflation down by -talking about hold rates where they are for a long time or -talk about raising rates. NOT A TRUMP YES MAN. Independence at the federal reserve still would exist under him “perception”.
This can seem like the economy may go through some tightening under him as Fed. BUT:
- Can bring down inflation expectations through market views on him. = cheaper interest rates for loans (through lower treasury yields)
- What if he supports cutting? It must “REALLY” mean the fed needed to cut if the inflation hawk supports cutting.
This can lead to a maybe “short lived” tough patch in the economy that could be boosted by the govt shutdown drag reversing early this year + tariff pull forward effects from recent tariffs + investments from trade deals + bigger tax returns from tax and spending bill + wealth effect from stocks being higher. Plus economy has been expanding, productivity from ai showing up, labor market holding up. Maybe we do achieve a soft landing (very light short lived recession????)
Kevin Warsh will be the new Fed chair and that based on what we talk about here could possibly be bullish for the economy considering the backdrop.