"in order to land the nomination to succeed Jerome Powell the directive from the Oval Office was explicit: The candidate would have to be more dovish than Powell. Warsh, a former Fed Governor, fits the bill: He's bullish on the U.S. economy, thanks in large part to the promise of AI, and is advocating for relative economic tightening on the Fed's balance sheet to offset lower rates."
"Iran borders the Strait of Hormuz, a narrow waterway in the Persian Gulf through which exports from UAE, Qatar, Kuwait, and Iraq all flow. Shipmasters are now nervous to sail through it. The White House has suggested its military will offer escorts to ships along the strait in order to keep the route open, though whether that actually happens remains to be seen."
"The knock-on effect for oil and gas prices is the key concern for economists. The Fed is tasked with keeping inflation at 2%, and consumer prices are already above-target on this metric. Lower the base rate would be adding fuel to that inflationary fire, by stoking consumption and borrowing."
Kevin Warsh, nominated for Fed chairman, is expected to pursue rate cuts to fulfill the Trump administration's directive for a more dovish monetary policy than Jerome Powell. Warsh supports lower rates while tightening the Fed's balance sheet. However, military tensions involving Iran and Israel threaten to complicate this agenda. Disruptions to shipping through the Strait of Hormuz could raise oil and gas prices, exacerbating inflation pressures. With consumer prices already above the Fed's 2% target and the labor market strengthening, cutting rates risks fueling inflation further. These geopolitical and economic headwinds create significant obstacles to delivering the rate cuts the administration seeks.
Read at Fortune
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