Musical chairs

The succession game at the Federal Reserve has already started. On Wednesday, governor Kugler did not vote, allegedly, for personal matters. Yesterday she submitted her resignation, 6 months before the end of her term. This movement, makes some room for a new Fed Governor, which will be hand picked by the President and confirmed by the Senate. The odds of that new governor being Kevin Warsh are getting higher by the minute. If that scenario ends up playing out, the White House has 2 months to “place” another dissenting voice at the Fed prior to the September meeting, and like a python would start pressuring Powell from the inside until he either reisgns or ends up being fired. But perhaps he can still finds data to support a rate cut: Friday’s job report was not good. Weakness in the labor market, which until Wednesday was not in the books, is now a pressuring item, and if confirmed on the next two reports can force Powell hand on rates. That’s what you see in the chart below: the odds of a cut have gone from improbable to almost certainty in 24 hours. And just like that, Trump may get his rate cuts, but he may not get lower long term yields. Who wil he blame if/when that happens?

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