Jan 30 (Reuters) – President Donald Trump said on Thursday he intends to announce his pick to replace Federal Reserve Chair Jerome Powell on Friday, with speculation intensifying that the nod will go to former Fed Governor Kevin Warsh.
Bloomberg News later reported that the White House is preparing for Trump to nominate Warsh as the next Fed chair, citing people familiar with the matter.
Warsh, on the short list of candidates to lead the central bank when Powell’s leadership term ends in May, went to the White House for a meeting with Trump on Thursday, according to one source familiar with the matter.
COMMENTS:
DAMIEN BOEY, PORTFOLIO STRATEGIST, WILSON ASSET MANAGEMENT, SYDNEY:
“(Warsh) is on record as saying he prefers lower rates. But the trade-off that he makes with lower rates is that he wants the Fed to have a smaller balance sheet.
“The markets are reacting as if thinking: ‘What would the world look like with a smaller Fed balance sheet?’
“As you start to talk about pulling the rug out from underneath that … all the hedges against balance sheet expansion that people have been going for – gold, crypto, obviously bonds start to sell a little bit.”
KRISTINA CLIFTON, SENIOR ECONOMIST AND SENIOR CURRENCY STRATEGIST, COMMONWEALTH BANK OF AUSTRALIA, SYDNEY:
“The dollar does seem to be up on that news, and I think that’s because … it’s generally considered that Kevin Warsh is a little bit less dovish than perhaps Kevin Hassett, who was another candidate for the role. So I think it’s just a little bit of a move on that … and (he would) perhaps kind of preserve a little bit more of the Fed’s independence than some of the other candidates would.
“We haven’t really heard too much from him yet, but I think he has made a few comments along the lines of wanting to … stick closely to the Fed’s mandate of keeping inflation in check … he has been a Fed governor before and he wasn’t in favour of QE either, so perhaps again a signal that he’s a bit less dovish than some other potential candidates.”
BEN BENNETT, HEAD OF INVESTMENT STRATEGY FOR ASIA, L&G ASSET MANAGEMENT, HONG KONG:
“I think most investors assume that whoever President Trump nominates will have a more dovish bias than the current chair. That would argue for future rate cuts, after Powell steps down in May, and some downward pressure on the U.S. dollar, but also higher long-term rates to reflect increasing risk premium. But this has been the market trend for a few weeks now, so maybe it’s already priced in and we’re facing a buy-the-rumour, sell-the-fact situation.”
JOSEPH BRUSUELAS, CHIEF ECONOMIST AT RSM US LLP, AUSTIN, TEXAS:
“My sense is that yields push higher across the maturity spectrum with a particular focus on the long end of the curve.
“The dollar will be a bit more interesting. The immediate knee-jerk reaction is to send the dollar higher. However, given renewed global concerns around policy unpredictability out of Washington once trading gets underway on Friday morning this could paradoxically cause the dollar to lose value.”
SONU VARGHESE, GLOBAL MACRO STRATEGIST, CARSON GROUP, CHICAGO:
“If the nominee is indeed Warsh, we could actually end up with a Fed that tilts hawkish at the margin.
“Kevin Warsh has historically been a hawk, even though he’s been talking rate cuts lately. If he walks into the Fed with aggressive cuts as his baseline, he may not have a lot of credibility selling others on the need for further rate cuts.
“And we may even end up with a deeply divided committee that doesn’t cut at all. In the immediate term, a potentially hawkish Fed could increase volatility.”
SHOKI OMORI, CHIEF DESK STRATEGIST, MIZUHO SECURITIES, TOKYO:
“With Warsh, we will get steady pressure for rate cuts, but it’s not going to be that easy for him given the way the board voted at the last meeting.
“People are misjudging the speed of rate cuts. It’s going to be slower than the market expects, or wants.
“At the same time, Warsh is seen by markets as more moderate than Hassett, which is why we’re seeing dollar-yen go up.”
KHOON GOH, HEAD OF ASIA RESEARCH, ANZ, SINGAPORE:
“I guess the appointment of Warsh, if it’s true, will be seen as someone who can, in a way, remain independent, and not someone seen as likely to be subservient to Trump’s wishes.
“The more telling would be how the market actually reacts when President Trump finally announces his pick.
“But I think the other thing as well, the dollar’s had a big yo-yo move this week, so some of these FX moves, I think I don’t want to put too much focus on it, because it could just be position squaring. Ahead of the announcement, people might just be lightening up risk.
“And the other thing as well is, especially on a Friday, if you think about it from an investor or market participant point of view … What happened in the first weekend of January? Venezuela. What happened in the second weekend? The Greenland thing. And who knows, now there’s potential around Iran, right?
“So any sensible market participant would not want to carry a big position into the weekend … so some of this could just be positioning lightening up. If you’re short dollars, you’ve done well, take your chips off the table.”
RODRIGO CATRIL, SENIOR FX STRATEGIST, NATIONAL AUSTRALIA BANK, SYDNEY:
“The Warsh story, if true, could be quite significant in the sense that he is regarded as a well-respected economist, and importantly, too, he gave a speech back in April last year, and in the speech he not only was a staunch defender of the Fed independence, but he was also very critical of the Fed and other central banks not speaking to their mandates.
“So overall, the market reaction, it’s been positive for the U.S. dollar because a Warsh appointment would not only play to the view that Fed independence will be protected, it would also play to the view that whilst some reforms should be expected, it’s not going to really dramatically change the Fed. And in particular, it’s also not going to necessarily mean that now we have a Fed that is at the whims of what President Trump or any other presidents would like them to do.”
TIM KELLEHER, HEAD OF INSTITUTIONAL FX SALES, COMMONWEALTH BANK, AUCKLAND:
“We’ve definitely seen some dollar buying straight away on the back of it.
“The fact that it’s most likely to be Warsh, I doubt we get much of a knee-jerk reaction as if we’d got Rick from BlackRock.
“He’s known to the markets and probably calm things down slightly.
“The inference we’re seeing is that he’s more of a steady pair of hands rather than a slash-and-burn, Stephen Miran sort of guy.”
(Reporting by Rae Wee, Gregor Stuart Hunter, Ankur Banerjee and Tom Westbrook in Singapore, Kevin Buckland in Tokyo, Saqib Ahmed in New York; Editing by Sumeet Chatterjee and Tom Hogue)
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