With the look put in a low rate, the president reinforces his influence on the Central Bank. The confirmation of the new member may not arrive on time for the next key meeting.
Upload tariffs and lower interest rates They are the president’s main aspirations Donald Trump. It doesn’t matter when you read this. In fact, order is the inverse. That the rates always had the priority. In January, he barely assumed, Trump He pointed out in Davos: Interest rates must go down immediately. It was not an order, explained his Treasury Secretary, Scott Besent. He referred, he said, at the long -term rates. But long rates fell and Fedwhich reduced short rates a complete point on the Cenit of the Administration Bidenhe did not move his in 2025. And then the pronouncement of Davos became an insistent – increasingly aggressive claim – than Jerome Powellthe head of the Central Bank, did not comply (nor does it have to obey).
Instead, Upload tariffs It is an objective that Trump He got achieved, although he had to wait until last week to do so with discretion already drawn. Let them say it Brazil and Indiatoday the range of range, which was imposed by a lien of 50%. It was not easy. The president had to reculate in April and May, almost to the edge of the anxiety. And support the effect of the effect WAD (The acronym in English of “Trump always wrinkles”). But it was tenacious and patient, waited for the timely occasion to counterattack. Calm the long rates with the promise of not placing more bonds to finance the treasure proved to be a formidable sedative. Allowed the approval of the package of Tax discountresume the tariff adventure and even cascade the monetary policy of the Fed without causing turbulence in the markets. The bag thus resumed the record path of Bull market. AND Trumpunder his eaves, he recovered his original agenda. He already got the promised commercial offensive in the campaign. But, he lacks rates. It is the time, then, to take advantage of the envy that recent successes gave it, challenge the limits and run over the reticence of the Central Bank, as it did to unilaterally impose the tariffs that it so longed for.
Under extreme pressure, Powell He does not regret. He kept the rates without changes in the July meeting. And, above all, he maintained control of the situation. But the vote was not unanimous. It was resolved 9 to 2. Thus emerged the first two dissent in favor of starting the reduction of fees, the governors Chris Waller and Michelle Bowman. Another governor – Adriana Kugler – He was absent. Two days later he presented his resignation and opened a vacancy that was going to occur only at the end of January. Powell resists. His mandate at the head of the Fed It has a fixed date: it expires in May next year. And he has said that it will not go ahead of time. But taking the helm will be more complicated. Neither slow nor lazy, the president already appointed the replacement for Kugler. It will be Stephen lookwho was in charge of Economic Advisors Council of the White House. One of the promoters of the tariff policy (and the weak dollar).
They look It is not an improvised, but it is an unconditional. As Besentaccumulates long years of market experience. And he has clear ideas about what needs to be done. He said after being nominated that there are no inflationary pressures because of tariffs. That if there was an impact on prices it will be an unique increase. In the short term, yes, there may be more volatility. But as a very short -term pricing phenomenon. In other words, not to mention it expressly, he said that Trump You are right and that you have to lower the rates. He also let his own cover a vacancy, fast, but only for the remaining time until the end of January. He is not the president’s man to conduct the destinations of the Fed. In that sense, he pondered to Governor Waller And his very good record “in terms of inflation. ”And so he raised his actions as a possible successor to Powell. What does it hold Waller? The same. That tariffs are an increase of one time of the price level and that they will not raise inflation beyond a temporary effect. And that it is wise to begin the pruning of rates, before the weakness of the labor market is accentuated. On Saturday, the governor Bowman He repeated the argument. Also added that it favors three rates reductions (A quarter quarter) before the end of 2025. Apparently, not only extra hours ago, also merits to take it into account.
To assume as governor, They look requires the approval of the Senate. It is a first inconvenience for the rush of the government. The summer break will keep legislators out of Washington to him September 9. The audience will jump to the top of the agenda. But this does not guarantee its confirmation in time so that it can participate, with voice and vote, in the meeting of the Fed planned for the following week, the 16 and 17. It is unlikely, although it is not necessary to rule it out because Trump It will remove sky and earth to achieve it.
What will the Fed do in its next conclave?
Disembarkation They look In time or not, the key to the decision will continue to have it Powell. The Chicago futures They discount the restart of rates with a probability around 90%. If inflation is not retoura (tomorrow will be known that of July), it will be a simple procedure. Voices like that of the governor Lisa Cook They already stated that the latest labor report – which revealed a sudden anemia in the creation of jobs – is “worrying“ and indicate a potential turn point in the economic cycle. Mary Dalyof the Fed From San Francisco, he pointed out, in turn, that the moment of the loss of fees is approaching, and that “more than two” could be needed, which are those contemplated in the points map by 2025. It is worth remembering that, in the last projections published by the Central Bank, there were ten wills that favored two cuts and that there are only three meetings to conclude the year. Corroborated labor market cooling, what better time to trigger a relief.
The futures of Fed Funds They don’t hesitate. They disagree on whether the cut will be repeated in October and December. Or only at the last rally of the year. But if tariffs drag with inflation, as is also likely, Powell You must appeal to your entire political waist to forge a decision that enjoys broad support, without the credibility of the Fed Neither do you thunder your leadership. If that waist was already used at the July meeting so that they did not emerge more dissent in public, then the decrease in September rates is compromised in advance. And will proceed without stridency.
But, if inflation rebels and its visibility persists, if They look He is confirmed as governor and is a staunch militant of his minimalist thesis, there the independence will be tested. Not in September, yes later. He Treasure You need shorter short rates to perform regular mega-subbasts of letters without stumbling, such as last week, when you placed 100 billion dollars 4 weeks. The problem is detected easy: what was once exceptional, Besent He needs it as a constant routine. The task will be complicated, unless short rates fall vertically. There, you can better dose the calendar and even emit more bonds without wreaking out on the long part of the curve.
Behind the onslaught of Trump Bulle the fiscal urgency. But one Fed Independiente will want to decide based on his mandate, without subject to the refinancing agenda of the Treasure. Understand well: If your credibility is lost in the struggles, either with Trump or with the data; or yes Powell Pocazo, you run the risk of ending in the worst of the worlds. That the president floods the Board of Governors of the Fed With its supporters (especially after the headquarters of Powell) I could ensure control of decisions, but if they are adopted with the systematic dissent of two or more district presidents (of the 5 who vote in all rotation) it will be sufficient to ruin the reputation. The governor Wallerthe favorite to replace it, knows it. “In that case, the rates are not going to fall. Without credibility, they will rise.”
Source: Ambito
