Tomorrow's Business Today
A tough call for the new man at the Fed
Kevin Warsh, the new Governor of the US Federal Reserve, is supposed to be his own man.
We are about to find out if that’s so, and the result has implications for interest rates around the world.
Donald Trump was permanently in a huff with Warsh’s predecessor Jerome Powell, who he felt didn’t cut interest rates as quickly as he should.
Tomorrow we get the latest US inflation figures, expected to show a slight rise from 3.8% to 3.9%.
That’s not terrible, but it hardly makes a case for cutting rates. Putting them up, perhaps.
Trump has already set out his stall, telling Meet the Press that, “we built the country by doing great and having rates low. What they do is when they raise interest rates, they try and kill success. I don’t want to kill success. We should actually lower interest rates”.
The Fed’s benchmark rate is in a range of 3.5% to 3.75%. Trump sees lower rates as a reward for growing the economy and thinks they should go down to 1%.
“It’s unfair that whenever you do great, they want to raise interest rates,” he said. “It should be the opposite way.”
It seems unlikely that Warsh, a banker with an impeccable CV, will agree with the President on this.
By Warsh’s telling, the job he has just started only requires two things.
Get interest rates about right
Act like you know what you are doing
By training, Warsh is a lawyer rather than an economist. Which I suppose gives him at least a shot at getting it right.
He has argued in the past that gains from AI might allow the US economy to expand without inflation, which is music to Trump’s ears.
But it might put him at odds with the other members of the rate-setting committee, which include Powell.
If his early words indicate that inflation is too strong to allow rate cuts, he is immediately at odds with Trump.
If he says there’s room for cuts, he sets himself against his closest colleagues, and quite possibly alarms markets that decide he’s going to let inflation run out of control.
If the US does cut rates – and gets away with it – that at least gives the Bank of England some room to do the same.
We’ll find out next week which way he leans.
Please send candidates for press release of the day to:
Press release of the day
FCA moves to improve the supply of mortgages to the self-employed and the elderly are to be welcomed, says TWM Solicitors.
Julian Sampson says: “The ageing population is creating an immovable lock up of equity as they are unable or unwilling to downsize without viable mortgage products to support them in doing so.”
“If they were more easily able to downsize, they could release housing stock into the market and cash into the economy.”
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