Powell’s term is ending. What kind of Fed chief will Warsh be?
Stephen Miran, a member of the Federal Reserve Board of Governors, announced his resignation from the position along with the inauguration of the new Fed Chairman, Kevin Warsh.
"Miran’s move was predictable, given that Warsh will take his place on the Fed Board," explains Bloomberg.
In his resignation letter, Miran criticized the way the Fed measures inflation and warned that if the central bank "does not correct these mistakes, it will lead to higher-than-necessary unemployment, fighting false rather than real inflation."
Nevertheless, he also emphasized that he looks at the changes Warsh plans to implement at the Federal Reserve with optimism.
Bloomberg reminds that the economist was one of the most "dove-like" members of the Fed, and during his tenure consistently advocated for rate cuts.
On Wednesday, the U.S. Senate approved Warsh for the position of Fed Chairman by a narrow majority of votes, which will take effect after Jerome Powell’s term expires, which ends on Friday.
Stephen Miran, a member of the Federal Reserve Board of Governors, announced his resignation from the position from the moment the new Fed Chairman, Kevin Warsh, was sworn in.
The comment about the upcoming changes at the Fed in an interview with FXMAG was given by Adam Fuchs, an analyst and currency dealer for services such as Walutomat.pl.
"Unfortunately, the selection of a new Fed chief has become another arena of political struggle, and it is not surprising given the pressure
exerted by Donald Trump on the central bank for months", he noted.
"In this way, Kevin Warsh was approved by the Senate with a historically narrow majority of votes (54 for, 45 against)", he added.
Although the new Fed Chairman comes as a presidential nominee who has been pushing for rate cuts all along, it is hard to expect Warsh to quickly transform into a pure dove. Especially in the face of rising inflation readings.
Even assuming a primarily supply-side character of the current price dynamics, related to the Strait of Hormuz blockade, it is difficult for decision-makers to find space to reduce the cost of money. On the contrary, a possibility of rate hikes is increasingly appearing on the horizon, albeit still rather in the perspective of a few quarters.
"In such an arrangement, it would be considered absurd for Warsh to opt for a different approach than the majority of the FOMC, but in the USA we should not confidently exclude any scenario", the expert said.
The federal funds rate, the last decision of Jerome Powell as Fed Chairman, was kept in April in the range 3,5%-3,75% at the April meeting.
The market expects that Warsh, with a probability of almost 99%, will keep rates unchanged in May.
Source: CME FedWatch Tool.
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Dollar and euro rates on Friday, May 15
The dollar to zloty rate on Friday, May 15 is at 3,64 PLN.
"For over a month now, the dollar market has essentially been in a local consolidation arrangement. This translates into about a 2-cent side corridor on EUR/USD, whose lower bound we will look for in the region of 1,165 USD", Adam Fuchs said.
"Without clear signals of de-escalation from the Middle East, while long-term investors are moving away from the consequences of the conflict, I expect a continuation of horizontal movement", he added.
With relative stability of EUR/PLN, this should translate into USD/PLN consolidation between 3,58 PLN and 3,65 PLN. Any real and lasting change in events around the Persian Gulf or in the markets’ approach to rising risks could, however, mean a violent exit from the described sideways trends.
Chart. Dollar to zloty rate (USD/PLN)
Source: TradingView.
The euro to dollar rate reaches 1,16 USD.
Chart. Euro to dollar rate (EUR/USD)
Source: TradingView.
The euro to zloty rate oscillates around 4,24 PLN.
Chart. Euro to zloty rate (EUR/PLN)
Source: TradingView.
Read also: Dollar before the chance to break out? Expert: "Capital will flow back into USD"
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Source: Bloomberg.
