The job market and the Federal Reserve have the opposite attitudes on the direction the interest rates should take. Two candidates for Fed governors that President Trump plans to propose to the Senate should work on bringing this contrasted views closer together.
The tweet announcing Judy Shelton and Christopher Waller as his candidates for these Fed positions came as no surprise because the president had already mentioned he saw Shelton suitable for the job. The case of Christopher Waller was a kind of mystery though. He was the head of the Fed in Saint Louis and didn’t give out the impression that he aimed for the position in the central bank.
These two candidates are supposed to push through Trump’s principle belief that the Fed should be more dedicated to further economic expansion by applying lower interest rates and loose monetary policy overall.
The president has a right to choose candidates who are going to support him and his monetary policy. However, the Senate has already rejected several of Trump’s proposals for this position.
So far, the Senate hasn’t accepted four of the president’s candidates for the Fed governors, and the last two were rejected for reasons that had nothing to do with their economic views.
As the president sticks to Shelton and Waller, these two should expect a clash because of their attitudes towards the interest rate. Shelton, for example, takes the stand that the interest rates should be kept around zero. Waller follows her lead by throwing away the commonplace view that the decrease in the job market calls for the interest rates rise.
This issue should be taken seriously because of the staggering gap between the market and the Fed predictions. As the figures show, the market-expected benchmark rate goes around 2.8% while the Fed estimates this rate to be closer to 1.3 %.
Trump says that the Fed insisting on the benchmark that ranges from 2.25 to 2.5 puts the American economy in the unfavorable position compared to the rivals from the G-7 group that keep their funds’ rates around zero.
Three Main Fed Members Are Still Going to Have the Final Word
Krishna Guha, the economy expert, says that Shelton and Waller are going to be a couple of doves in the Fed flock, while the leading “troika” is still going to have the final say in the direction the monetary policy is taking.
So the Fed members who are going to determine the US.. monetary policy are the New York Fed president, John Williams, Vice-Chairman, Richard Clarida, and Chairman Jerome Powel, severely criticized by the president.
The two most recent candidates should ensure that the equity market stays undisturbed by the Fed policy. At the same time, Shelton is supporting the concept of the super-strong U.S. currency linking it to gold with the interest rates revolving around zero.
A VoteThat Could Shift Balance
These two, if appointed, would be the two contrasting voices in the body that didn’t meet any confrontation when they first raised rates and then held them despite the market demands for the rate cuts.
The “dot plot,” where the Fed members expressed their personal attitudes towards the interest rates increase, showed the tight gap between those who wanted to keep the rates where they were and those who advocated the cut. Two additional voices to the cut side may be considerable leverage when it comes to voting.
The experts claim that the essential question is whether these two candidates would change their stand during their mandate in the Federal Open Market Committee (TFOMC). While Shelton supports Trump through-and-through, she is expected to fight for the lower rates. However, if she were a decent economic analyst, she would probably vote for the rate increase at some point, an expert stated.
Economists familiar with Waller’s work claim that he would go for the higher rates in the long run as he now stands for the rate cuts in the short term. President of the St. Louis Fed concluded that TFOMC members don’t hold their stands feverishly. The decisions are always governed by the fluctuations of the market. Thus the “hawks” can vote for a loose policy sometimes, and the “doves” can back up the rate increase.