Room to manoeuvre
Kevin Warsh was sworn into office at the White House on Friday. Despite limited market movement on Friday, many prices gapped significantly come the open yesterday. Whilst the UK and US observed a bank holiday yesterday, many indices and currencies were on the move. The theme across the market was risk on with equities rising and the Dollar falling. Much of that positive sentiment was based upon the promise or the illusion a US-Iran deal, something President Trump paid constructive lip service to over the weekend.
However, as of today that tailwind to risk and FX ex-USD, is dissipating. This is because even while talks are ongoing in Qatar for a ceasefire, US and Israeli forces overnight conducted strikes on targets within and around the Strait of Hormuz. As conflict driven sentiment continues to struggle to find meaningful direction, let’s look elsewhere. We heard from Warsh and Trump on Friday regarding the Fed, what does that mean, if anything, for the market?
Firstly, there are some positives to be derived from the fact that Chairman Warsh and President Trump both, out loud at least, promoted the independence of the Fed. The threat of independence has weighed on the Dollar in recent years. Beyond that, Warsh, now the 17th Chair of the Federal Reserve, chose to invoke the governorship of Alan Greenspan explicitly and implicitly in his initial speech. Greenspan was the chair of the Fed during the dotcom bubble era and most famously his Committee defied pressure from markets to raise rates amidst rising growth at the turn of the millennium. It worked for Greenspan, but it’s a very dangerous move if Warsh is wrong about the productivity boost afforded by AI and fails to listen to the data.
Discussion and Analysis by Charles Porter
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