The economic decisions front is not a data print; it is leadership and independence at the Fed. Kevin Warsh, nominated by President Trump for the Fed Chair, finds himself in the middle of a Senate confirmation process that is already impacting investor expectations for monetary policy. On an operational note, when there is fear of Fed Chairman appointment being political, inflation expectations will increase, rates and yields can rise, even without Fed hikes, as bond markets price that possibility.
It is important because the Fed’s mandate has both a technical and a credibility aspect. Weakening of the latter can be reflected in terms of higher funding costs, stronger US currency and greater volatility in stock and credit markets. This creates problems for the central bank’s reaction function – pre-emptive cuts can lead to a resurgence of inflation expectations, whereas overly restrictive policy creates risks of a recession. A politically contentious confirmation process adds to uncertainty when the economy is exposed to energy and supply side factors.
This just goes to show how important the FED chair position is. The party of those running can influence United States' inflation and the entire world interest rate. Hearing that inflation expectations are expected to rise even more is quite scary, as they have already been going up and are yet to fall back to the FED's 2% goal.
ReplyDeleteThe Fed chair is such a important position and seeing this confirms that even more. The scare of inflation will most certainly cause some changes and precautions to be taken.
ReplyDeleteThe Fed chair's role is really one of the more important roles in the global economy. Even the perception of the political influence can shift how the markets react.
ReplyDeleteThis is one of the most economically important roles in the world. This makes me think that the president being able to appoint the chair may not always be the best thing, even though it does make some sense in our government.
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