This evening (European time), the minutes of the November meeting of the Fed’s FOMC will be published. Normally, such a publication is an important event, because it provides a fairly deep insight into the thinking of FOMC members and helps to contextualize recent monetary policy decisions. This time, however, it is different. Everything the FOMC has decided so far may be less suitable than usual for predicting the effective parts of future US monetary policy. Because the cards in the game between the government and the central bank could be reshuffled when the next US administration takes office, Commerzbank’s Head of FX Research Ulrich Leuchtmann notes.
Trump appointments promise a whole load of fun
“Immediately after taking office in January, Trump should appoint someone to succeed the current Fed Chair Jay Powell when his term of office ends in early 2026. And this designated ‘shadow chairman’ is supposed to loudly proclaim on an ongoing basis until he takes office in 2026 that he will introduce a loose monetary policy as soon as he takes office. If everyone knows that the Fed will be pursuing a loose monetary policy from spring 2026, the effect will be very similar to a loose monetary policy today.”
“There could be a residual uncertainty. Will Congress actually confirm the “shadow chairman”? Will he be able to assert himself within the Fed from the outset or will there be resistance from the governors and regional Fed presidents? Or will the shadow chairman possibly mutate from a monetary dove to a hawk when he takes office? We have seen such sudden transformations in the past.”
“Two points remain that I take from Bessent’s nomination: 1. Bessent is by no means the conventional candidate that some would like to see in the role. He is potentially disruptive. 2. Even without Congress formally amending the Federal Reserve Act, there is sufficient scope for the US government to damage the Fed’s independence. The strength of the US dollar with which the currency market has acknowledged the election of Trump as the next US president is therefore at the very least bold.”
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