Daily update
Daily update
- There is widespread speculation that US President Trump will nominate former Fed Governor Warsh as next Fed chair. They need Senate confirmation, which may take time. Warsh’s time as governor was not, perhaps, notable—what policy bias there was tended to the hawkish. Now Warsh seems to believe AI will be disinflationary (technology is often more about relative price changes than inflation or disinflation).
- Does this suggest a more accommodative stance? It is too soon to assume that. To get aggressive rate cuts, Warsh would need to convince the bond market vigilantes (who have heightened sensitivity to signs of political interference), and other members of the Fed. The Fed has acquired a British tone to its deliberations of late, with more widespread dissent.
- European data is presenting a benign view of the world. German inflation is expected to stay around 2%, and Spanish inflation is expected to rapidly approach 2%. The low inflation environment gives consumers the spending power to provide a solid basis to growth—witnessed by France’s trend-like growth rate in 4Q.
- US December producer price data should show broadly stable inflation, still clearly above pre-pandemic norms. Overnight, Trump was threatening tariffs on US importers of Canadian aircraft, but markets are likely to show little response to these comments.