We’ll see

Today, Kevin Warsh, the Trump nominee for chairman of the Federal Reserve will go to Congress to be “grilled” by the special committee set up for this matter. Kevin Warsh is supposed to be very different from prior Fed chairmans. He has his academic background, but has worked in the private sector and is actively involved in investing for others and his own. He’s perceived as a hawk (tough with inflation) but advocates for low interest rates and small Fed balance sheet. He thinks inflation is a choice. In the chart below, you can see both items: the Fed balance sheet, shy of $7Tn, and official interest rates, at around 3.68% (formally between 3.5% and 3.75%). These are the levels he is inheriting. Trump is already mentioning publicly that rates will be lower as soon as he’s confirmed. We’ll see. We’ll see if the Fed does not become once again the buyer of last resort for treasuries. We’ll see what happens when inflation goes up because of the oil shock we’re suffering. And we’ll see what happens if the US falls into recession.

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