Authored by Mike Shedlock via mishtalk,
Good looks says Trump, but what else?
On January 16, I noted The Decision to Replace Fed Chair Jerome Powell Is in Final Stretch
Trump was impressed by Warsh in an interview last month, telling associates over the holidays that he was struck by his acumen and good looks, according to people familiar with the matter.
Warsh has soared into the lead. He’s up from a 7 percent chance on December 3 to 44 percent now.
Hassett was once at 85 percent, now down to 36 percent.
Betters failed to note that Warsh is much better looking.
Warsh Wins
Truth Social: I am pleased to announce that I am nominating Kevin Warsh to be the CHAIRMAN OF THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM. Kevin currently serves as the Shepard Family Distinguished Visiting Fellow in Economics at the Hoover Institution, and Lecturer at the Stanford Graduate School of Business. He is a Partner of Stanley Druckenmiller at Duquesne Family Office LLC. Kevin received his A.B. from Stanford University, and J.D. from Harvard Law School. He has conducted extensive research in the field of Economics and Finance. Kevin issued an Independent Report to the Bank of England proposing reforms in the conduct of Monetary Policy in the United Kingdom. Parliament adopted the Report’s recommendations. Kevin Warsh became the youngest Fed Governor, ever, at 35, and served as a Member of the Board of Governors of the Federal Reserve System from 2006 until 2011, as the Federal Reserve’s Representative to the Group of Twenty (G-20), and as the Board’s Emissary to the Emerging and Advanced Economies in Asia. In addition, he was Administrative Governor, managing and overseeing the Board’s operations, personnel, and financial performance. Prior to his appointment to the Board, from 2002 until 2006, Kevin served as Special Assistant to the President for Economic Policy, and Executive Secretary of the White House National Economic Council. Previously, Kevin was a member of the Mergers & Acquisitions Department at Morgan Stanley & Co., in New York, serving as Vice President and Executive Director. I have known Kevin for a long period of time, and have no doubt that he will go down as one of the GREAT Fed Chairmen, maybe the best. On top of everything else, he is “central casting,” and he will never let you down. Congratulations Kevin! PRESIDENT DONALD J. TRUMP
Trump Attacks Powell Again
Truth Social: Jerome “Too Late” Powell again refused to cut interest rates, even though he has absolutely no reason to keep them so high. He is hurting our Country, and its National Security. We should have a substantially lower rate now that even this moron admits inflation is no longer a problem or threat. He is costing America Hundreds of Billions of Dollar a year in totally unnecessary and uncalled for INTEREST EXPENSE. Because of the vast amounts of money flowing into our Country because of Tariffs, we should be paying the LOWEST INTEREST RATE OF ANY COUNTRY IN THE WORLD. Most of these countries are low interest rate paying cash machines, thought of as elegant, solid, and prime, only because the U.S.A. allows them to be. The Tariffs being charged to them, while bringing in $BILLIONS to us, still allows most of them to have a significant trade surplus, though much smaller, with our beautiful, formerly abused Country. In other words, I have been very nice, kind, and gentle to countries all over the World. With a mere flip of the pen, $BILLIONS more would come into the U.S.A., and these countries would have to go back to making money the old fashioned way, not on the back of America. I hope they all appreciate, although many don’t, what our great Country has done for them. The Fed should substantially lower interest rates, NOW! Tariffs have made America strong and powerful again, far stronger and more powerful than any other Nation. Commensurate with this strength, both financial and otherwise, WE SHOULD BE PAYING LOWER INTEREST RATES THAN ANY OTHER COUNTRY IN THE WORLD! Thank you for your attention to this matter. President DONALD J. TRUMP
Massive Ignorance by Trump
- Powell does not set rates. His vote is 1 of 12. And the vote was 10-2 in favor of holding rates steady.
- Tariffs are a tax on US citizens and business. Money does not flow in from foreign nations due to tariffs.
- It is idiotic for Trump to suggest he is kind to anyone but political hacks and criminals who donate to Trump.
- Tariffs do not and never have made any country powerful.
Is Warsh a Friend of Foe?
The Wall Street Journal reports Wall Street Can’t Decide Whether Kevin Warsh Will Be a Friend or Foe
Investors are optimistic that Warsh will preserve the Federal Reserve’s cherished independence. They are also concerned he might be far from the easy-money chair that President Trump has demanded, noting Warsh’s enthusiasm for reducing the central bank’s bondholdings.
The conflicting views were reflected Friday by falling stocks, steady bond yields, a rallying dollar and the worst day for gold and silver in more than four decades.
A Fed governor from 2006 to 2011, Warsh earned a reputation as an inflation hawk, having argued for years that low interest rates and expansive bond purchases would fuel rising prices.
More recently, he has said the Fed should cut interest rates faster. But he has also continued to argue that the central bank should shrink a balance sheet stuffed with U.S. Treasurys—a move that some investors believe could mitigate the impact of rate cuts.
Some leading investors cheered the pick. They say Warsh will likely prove more independent than other potential choices, and that investors will become more comfortable with the choice. Warsh’s background working with investor Stanley Druckenmiller is another reason to believe he might not prove hostile to markets, some say.
“Warsh is a pragmatist,” said Rob Arnott, founder of Research Affiliates. “He’ll be a voice of reason, and that will be calming and soothing to the markets.”
Hedge-fund manager Paul Tudor Jones praised Warsh as “very market savvy.”
“With debt/GDP over 100% and a budget deficit of 6%, he is the perfect person to navigate what will potentially be challenging times,” Jones said.
“People are responding to his comments that the balance sheet should be smaller,” said Priya Misra, a fixed-income portfolio manager at J.P. Morgan Asset Management. “That would have a really big impact on risk assets.”
Price moves were most dramatic in the market for metals, which have roared to all-time highs and traded like meme stocks in recent months. Gold futures fell 11%, their largest one-day decline since January 1980. Silver plunged 31% in its worst one-day loss since March 1980.
Some investors also noted that Warsh’s stated views wouldn’t necessarily translate to any near-term policy changes. While Fed chairs have historically wielded outsize influence at the central bank, they lack power to make policy on their own. The Fed, with the approval of Trump-appointed officials, just started expanding its balance sheet again by buying short-term Treasurys in an effort to relieve pressure in overnight lending markets.
Peter Boockvar, chief investment officer at OnePoint BFG Wealth Partners, said Warsh’s complicated history makes it hard to immediately discern his likely policies as Fed chair.
“Will the real Kevin Warsh please stand up?” he asked.
Trump Demanded a Fed Dove, But What Did He Get?
Bloomberg reports Trump Demanded a Fed Dove. He Picked a Hawk.
President Donald Trump turned the search for a new Federal Reserve chair into a game show. The winner is the most curious possible pick: Kevin Warsh. That choice is bound to add to market volatility and satisfy no one — probably not even the president.
Above all, the choice will be a source of tremendous cognitive dissonance across Wall Street and policy circles. While Trump pledged to pick a Fed chair who would usher in easier monetary policy, Warsh has been regarded as a hawk since his five-year stint as a Fed governor ended in 2011.
That profile will make it hard for Warsh to build credibility. If he lowers interest rates, markets will perceive him as a Trump lackey who has abandoned his principles.
It’s only since entering the conversation about the next Fed chair that he’s become a dove, and even now there’s some nuance to that statement: He has advocated for lower rates but also a substantially smaller balance sheet.
In this case, we already know that the real Kevin Warsh is rigidly hawkish. If we get any other version, it probably tells us he’s kowtowing to Trump. His personal proximity to the president, as the son-in-law of prominent Republican donor Ronald Lauder — the son of makeup scion Estee Lauder — won’t help with the optics either.
His candidacy also appears to have gotten a bump for the most superficial of reasons: his appearance. In the social media post announcing the decision, the president described him as “central casting.”
This isn’t a great look for the world’s most important central bank. Policymakers are navigating large risks to both the stable prices and maximum employment parts of their dual mandate. The path ahead is highly uncertain and will only be revealed by careful study of the incoming data — not dogma. And by picking Warsh for the job, Trump seems to have put himself and the American people in a hard-to-win situation.
Best of the Lot
Despite Warsh saying the things he needed to say to get selected, every one of Trump’s potential picks was doing that.
I believe Warsh is the best of the lot by far.
So, I think this was a good pick by Trump, and the only good pick of the top 5 candidates.
Trump wants someone he can control. I doubt Warsh is that person.
Even if Warsh bends somewhat to Trump, it will not be Warsh’s call alone.
Warsh’s Term
Kevin Warsh’s term as Federal Reserve Chair would begin in May 2026.
If confirmed by the Senate, he will take over when current Fed Chair Jerome Powell’s term expires in May 2026.
Powell has not stated whether or not he will stay on as Fed governor. Without strong conviction, I think he will linger, for a while.
The Next Fed Move
It’s possible the next move by the Fed is a rate hike, not a cut.
Although I expect more weakness in labor, I also expect more upside to inflation, especially as measured by the PCE.
The balance between those ideas will determine.
Please note The Fed Has Missed Its Inflation Target on Ten Different Measures
The Atlanta Fed tracks various inflation targets. Let’s have a look.
A falling dollar adds to inflation. So will rising crude prices, assuming I am right about oil prices having bottomed. Tariffs have not fully hit yet.
And unless I am crazy (maybe I am), health care and tax rebates are going to fuel inflation shortly.
I will discuss tax refunds next week.
So, let’s wait an see who is right about inflation, and jobs. Had the Fed cut, I think yields on the long end would have soared.
Powell thinks the Fed is in a good spot. I don’t. And whatever spit that is, Warsh will soon be in it.
Prediction: Trump will be more than a bit annoyed at Warsh, possibly as soon as this summer.