WASHINGTON–The Federal Reserve will open two days of meetings today and is expected to hold interest rates steady when it adjourns on Wednesday, but for many the bigger issue is the January meeting comes at the same time politics hangs over the court according to numerous analysts.
The Trump administration is pursuing a criminal investigation of Fed Chairman Jerome Powell for alleged illegalities related to the remodeling of the Fed’s headquarters, and just a week after the Supreme Court heard arguments in a case involving the administration’s attempt to fire Fed Governor Lisa Cook.
Search for New Chair
In addition, the Trump administration continues to search for a new Fed chair to replace Powell. Only three scheduled policy meetings remain in Powell’s eight-year stint as the world’s top central banker, but the typically smooth transition has become a potentially disruptive period, noted Reuters.
“Powell faces the controversial decision of whether to stay on as a Fed governor under his successor, the Supreme Court may rule whether Cook becomes the first Fed governor removed by a president, and President Donald Trump’s nominee to lead the central bank must convince U.S. senators he won’t be captive to Trump’s demands,” Reuters observed in its analysis. “With so much in motion – and the Fed’s independence at stake – the policy debate seems almost secondary, although analysts at this point largely expect the central bank’s institutional guardrails to hold.”
Not ‘Separate’
“It’s not possible to view the actions of the next Fed chair as separate from the economic environment or their ability to influence other FOMC (Federal Open Market Committee) participants,” Tim Duy, chief U.S. economist with SGH Macro Advisors, told Reuters.
Indeed, whoever succeeds Powell will still need to convince other U.S. central bank governors and the five voting Fed regional bank presidents of the need for any rate cuts, regardless the wishes of the president, who has been pressing for a quick reduction in rates, as the CU Daily has been reporting.
“Trump will need greater turnover at the Fed to fully control the institution,” Duy added in comments to Reuters.
Nominee Announcement to Come
That process will take a major step forward when Trump announces, perhaps this week, his nominee to succeed Powell. Reuters noted the finalists include Trump economic adviser Kevin Hassett, Fed Governor Christopher Waller, former Fed Governor Kevin Warsh and BlackRock’s chief bond investment manager, Rick Rieder.
Reuters noted Michael Pearce, chief U.S. economist at Oxford Economics, said in a note that “events outside the committee have the potential to shake up the path,” as a new Fed chief takes over and particularly if the “small risk” of Cook being ousted is realized, but “Our baseline is that the Fed will lower interest rates in June and September.”
