Big changes at the Fed. Will interest rates fall faster?
Kevin Warsh, candidate for the position of Federal Reserve Chairman, was approved on Wednesday by the Senate with a narrow majority of votes.
According to Bloomberg, the voting result, 54:45, turned out to be the smallest margin in the history of approving a central bank chief in the United States, reflecting increasing polarization around his selection.
The only Democrat senator who supported Warsh’s candidacy was John Fetterman.
The public debate now focuses on whether the new Fed chief will succumb to Donald Trump’s pressure regarding rate cuts.
The source of these concerns is the repeated attacks by the U.S. president on Jerome'a Powell, who during his tenure was regularly criticized for not quickly easing monetary policy when the White House expected it.
Shocks at the central bank’s walls peaked in mid-January when Powell announced that the federal prosecutor’s office had opened an investigation into renewal work at the U.S. central bank’s headquarters in Washington.
Trump then accused them of costing far more than originally assumed.
“This unprecedented action should be viewed in the broader context of threats and continuous pressure from the administration,” Powell said at the time.
We wrote more about this in the article: Rates will not fall? The prosecutor opened a major investigation into the central bank
Democrats also continue to raise the issue of Trump’s efforts to dismiss Board Governor Lisa Cook.
Powell’s term ends on Friday, meaning that one of the first challenges Warsh will face is the persistent inflation caused by the Middle East conflict.
The Federal Reserve’s independence will remain in focus, especially in the context of the upcoming midterm elections in November.
The federal funds rate, the last decision by Jerome Powell as Fed Chair, was kept in April in the range 3,5%-3,75%.
CME FedWatch Tool data indicate that Kevin Warsh is almost 99% likely to refrain from both cutting and raising rates at the May meeting, due to uncertainties related to the war in Iran.
Source: CME FedWatch Tool.
Read also: Will the dollar still surprise? The expert issued a forecast for USD/PLN and EUR/USD. “It’s hard for me to believe there will be no more fires.”
See also: Dollar on a long road to 4 PLN? The expert issued forecasts for USD/PLN and EUR/USD. “The dollar could gain.”
Dollar and euro rates on Thursday, May 14
The dollar to zloty rate on Thursday, May 14 is at 3,62 PLN.
“Currently in currency markets the prevailing view is that volatility is surprisingly low,” analysts from ING Think said.
“Despite the prospect that the stagflationary oil shock could throw the global economy out of balance, volatility levels do not deviate significantly from the lowest values recorded in the last five years,” they added.
Economists say this is related to the stock market situation, dominated by optimism linked to the AI sector.
“We notice that equity markets play a more dominant role in currency valuation than interest rate differentials or oil prices,” we read in the bank’s report.
Chart. Dollar to zloty rate (USD/PLN)
Source: TradingView.
The euro to dollar rate reaches 1,17 USD.
Chart. Euro to dollar rate (EUR/USD)
Source: TradingView.
Read also: Dollar before a breakout chance? Expert: “Capital will flow back to USD.”
See also: Dollar before a “nervous and dynamic” move, euro waiting for a drop? Expert issued a forecast for USD/PLN and EUR/USD
Source: Bloomberg, ING Think.
