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Wall Street is already anticipating the fate of the Fed with Trump as president

Wall Street is already anticipating the fate of the Fed with Trump as president
Wall Street is already anticipating the fate of the Fed with Trump as president

Among the effects that the premature presidential debate between the president has already generated Biden and his challenger Donald Trump he market focuses on speculation about what might happen with the Federal Reserve (Fed) and in particular with the fate of its president, Jerome Powell if the former Republican president wins in November.

In this regard, strategists at the Dutch bank Rabobank recall that last year, when asked about his plans for the Fed if he won a second term, Trump made it clear that he will not reappoint Powell as chairman, which would mean we will see a new Fed chairman after May 23, 2026.

Precisely last March a leak was made short list of the leading candidates and a month later there was another leak that revealed a plan for the Fed that goes much further and that according to the people at Rabobank includes the premature removal of Powell and a new job description for the next Fed chair.

It should be noted that The appointment of a new Fed chairman would require a Republican majority in the Senate. But the Dutch bank also warns that a change at the head of the US central bank would provoke market reactions and would also have implications for monetary policy, the yield curve and inflation.

Trump could shorten Powell’s term by about 16 months, they warn

“However, According to the plan leaked in April, Powell should be ousted as Fed chairman before his term ends in 2026. The question is whether the US president has the power to do so. Trump’s allies who drafted the plan seem to believe that this is within their power. Given that the presidential inauguration is on January 20, 2025, and Powell’s second term expires on May 23, 2026, this means that Trump could shorten Powell’s term by about 16 months,” they explain.

Now, when looking for a candidate to replace Powell at the head of the Fed, Rabobank analysts focus first on the central bank and point out that if the plan is to remove Powell as chairman but keep him as Fed governor, then Trump would have to select a new chairman of the current Board of Governors, since there is no vacancy at the moment.

“This means that by January 31, 2026, when Adriana Kugler’s term expires, Trump would have to appoint one of the current governors as the new Fed chair if he succeeds in removing Powell from this position, leaving Christopher Waller and Michelle Bowman as the two Republican candidates,” they add.

However, they point out that if a current governor were to resign prematurely, Trump could bring in an outside candidate. “Of course, one of the Republican governors (Waller or Bowman) could be persuaded to resign in exchange for a position in the Trump administration or elsewhere. This would clear the way for an outside Fed chair. Although Waller and Bowman are Republicans, it is unclear whether they would be willing to follow Trump’s orders on the FOMC,” these analysts note.

This way, At Rabobank, Trump is more likely to opt for an outsider to replace Powell at the head of the Fed if he eventually wins the election, And in this regard, they recall that the Wall Street Journal reported last March that two of Trump’s advisers, Steve Moore and Arthur Laffer, had drawn up a short list of three candidates.

Who makes up this list?: Kevin Warsh, Kevin Hassett and Arthur Laffer himself, Although analysts stress that Trump has not committed to any candidate and is expected to cast a wide net. “Indeed, other Trump allies are also likely to propose recommendations. However, Kevin Warsh was also on the final list of candidates for Fed chair in 2017-2018, when Powell was ultimately nominated by Trump,” they note.

Kevin Hassett was the chairman of the Council of Economic Advisers during the Trump administration, while Arthur Laffer was an economic advisor to Ronald Reagan, creator of the Laffer Curve and consequently an advocate of Trump’s tax cuts in 2017. Trump awarded him the Presidential Medal of Freedom in 2019.

A fact not to be overlooked, Laffer is now 83, Kevin Warsh is 54, and Kevin Hassett is 62, so there is a generational chance that the next Fed chairman will be named Kevin, bet from the Dutch bank.

Source: Ambito

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