In a post on Truth Social, President Trump announced he will nominate Kevin Warsh to succeed Jerome Powell as the Chair of the Federal Reserve. Warsh previously served on the Fed’s Board of Governors from 2006 to 2011 and was passed over by Trump in favor of Powell in 2017. He has previously advised Trump on economic policy, while recently advocating publicly for lower rates. Subject to confirmation by the Senate, Warsh would take charge of American monetary policy at a time when the traditional independence of the U.S. Central Bank has fallen under scrutiny due to perceived interference from Trump himself.
The announcement came after a relatively benign FOMC meeting this week in which the committee left rates in their current 3.50-3.75% range, the first pause since their July meeting. Christopher Waller and Stephen Miran dissented in favor of cutting rates again. Jerome Powell was immediately peppered with questions regarding his appearance at Lisa Cook’s Supreme Court case and whether he’d responded to the DOJ’s grand jury subpoenas. He deflected in both instances, as well as when he was questioned about the recent decline in the dollar. Powell referred reporters to Congress and the President as administrators of fiscal policy. He also hinted at a prolonged pause in rate cuts and notably did not discuss any plans for additional easing measures in the meantime.
As of this writing, Trump and Senate Democrats appear to have reached a tentative deal to avert another government shutdown. In its current form, the deal would fund most government agencies for another year. The Department of Homeland Security would be funded at current levels for two more weeks to allow more time for negotiations on a longer-term compromise. However, the last-minute nature of the negotiations hasn’t left much time for the bill to clear both chambers of Congress and on to the President’s desk for final approval before midnight tonight. This means we may see a short funding lapse and subsequent ripple effects, but nothing to the degree we saw in October. In my humble opinion, this isn’t much more than another “kick the can down the road” measure as we’ll likely find ourselves in a shutdown showdown a year from now.
KEY INDICATORS THIS WEEK
PPI – Final demand rose 0.5% MoM in December. Excluding food and energy, it rose 0.7% - the fastest monthly increase since mid-2024.
Commodities – Gold briefly eclipsed $5,500/oz on a weak U.S. dollar. Brent crude oil rose to over $70/barrel for the first this year over tensions in Iran.
Next Week – Jobs week!