Kevin Warsh, who President Trump nominated to replace Fed Chair Powell last week, has historically favored holding interest rates higher for longer in order to keep inflation at bay. However, JPMorgan expects Warsh to change his stance and call for rate cuts this year.
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“Our best guess is that this year Warsh will make the case for rate cuts,” said JPMorgan Chief Economist Michael Feroli. “We’d also suspect that as time goes on, his leanings will be more open to revision and perhaps reversion back to a more hawkish view.”
Fed Officials Split on Rate Cuts as Odds Rally
Feroli added that one challenge Warsh faces is convincing other Fed officials to support rate cuts. During the last Federal Open Market Committee (FOMC) meeting, several officials continued to highlight the risks of sticky inflation.
The odds of a rate cut at the next FOMC meeting on March 18 have more than doubled to 20.7% compared to 9.4% yesterday on the CME FedWatch tool. A trio of concerning labor market data from the Bureau of Labor Statistics, the Department of Labor, and outplacement firm Challenger, Gray & Christmas covering layoffs, hiring, and weekly jobless claims helped push the odds higher.