What will it mean to have KevinWarsh as Fed Chair?
📰As news came out that Trump's nomination for the next Fed Chair was economist Kevin Warsh, gold fell, longer-term Treasury yields rose and the US dollar climbed
🦅Traders may have assumed that Trump's pick was "hawkish" given that Warsh - who was on the Fed board from 2006-2011, had been openly critical of the Fed's loose view of monetary policy
🏦In fact, Warsh quit the board as the Fed continued its quantitative easing programme in 2011, arguing that the aggressive bond buying went too far and artificially depressed borrowing rates for extended periods. That, in turn, fanned Wall Street risk-taking while encouraging US lawmakers to pile on more debt, leading to what he called “monetary dominance,” in which financial markets become overly dependent on central-bank support (Bloomberg)
🔄However, it is worth noting that Warsh has shifted his public stance from a long-standing "inflation hawk" to an advocate for lower interest rates and structural reform at the Fed in recent years.
⬇He has argued that policy rates should be lower because deregulation and spending cuts from initiatives like the Department of Government Efficiency (DOGE) as well as the proliferation of AI will act as disinflationary forces
🚫With regard to the medium term, he has attacked the Fed's "inflation dogma" and said that rapid growth and rising wages are not the primary drivers of inflation
🗯Finally, he has been a vocal critic of current Chair Jerome Powell, describing the Fed’s leaders as "broken" once they "strayed" into political areas such as climate change and diversity (Macquarie Sales and Trading)
👤With Powell stepping down as Chair on 15 May but remaining as a Fed governor on the board, the incoming Chair will need to forge a consensus on rate policy across the Federal Open Market Committee’s 12 voting members including Powell
⛈With the markets already showing immediate turbulence on Warsh's nomination, volatility is likely to remain elevated in the short-term
Investors keen to trade the volatility can consider using index call and put warrants to do so
✳✴Index warrants track the broad moves in the respective indices of $S&P 500(.SPX)$ , $NASDAQ 100(NDX)$ , $Hang Seng Index - main 2602(HSImain)$ , $Nikkei 225 Index(N225.JP)$ and SIMSCI: https://warrants.com.sg/tools/warrantsearch/?underlying=Indices&maturity=all&expiry=all&type=all&effectiveGearing=all&indicator=HOTLIST&moneyness=all&issuer=MBL
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