This week the Fed is in the hot seat with speculation already swirling over its chairmanship and the release of key economic indicators. With Jerome Powell at the helm, discussions of potential successors are intensifying, especially in light of recent developments at the Fed. Major staff are now gone from the institution following the highly controversial Nonfarm Payrolls (NFP) data release. Her departure has raised concerns over the institution’s trajectory, future implementation of monetary policy and general direction.
President Donald Trump has suggested he might nominate a new governor who would take Powell’s place. This potential shift in leadership coincides with growing concerns about the U.S. economy and its performance, particularly as the market awaits critical data releases that could influence monetary policy decisions.
Fed Leadership Speculation
Jerome Powell remains at the helm of the Federal Reserve. Despite his successful agenda, talk about his future is already heating up. Kevin Warsh, a former Fed official, and Kevin Hassett, who currently holds a position at the White House, have emerged as potential candidates to lead the central bank. Third, their positions indicate a major pivot in monetary policy if they were to assume power.
The speculation surrounding Powell’s succession is fueled by President Trump’s recent statements indicating a forthcoming nomination. This nominee is important because they will have outsized power over the Fed’s overall approach, especially in terms of raising interest rates. What’s more, observers believe that any successor would be more supportive of rate cuts — something that may fit the current economic climate, to boot.
As the drama continues to play out, watch for Mary Daly, the President of the San Francisco Fed, to stay in lockstep with Powell. So her takeaways from the NFP data are acutely applicable. As the Fed makes important monetary policy moves in this transitional period, these pieces help illuminate the Fed’s path.
Impact of Recent Developments
After releasing last Friday’s Nonfarm Payrolls data, the Fed has been rocked by internal discord. The primary government statistician who got this important new data released was fired. These sharp downgrades surprised many economists and policy makers just as much. This incident has put a significant cloud on the credibility of this data and what it means for future economic assessments.
Adding to this picture, a resignation came with these changes, further scrambling the Fed’s direction. Analysts are already speculating that these changes could speed up conversations around leadership transitions at the institution itself. The sudden exit of heavy-hitters such as Kugler would likely force would-be candidates into the limelight much sooner than expected.
What’s more, the changes to the Nonfarm Payrolls data have served to shift scrutiny onto Continuing Jobless Claims. As these claims grow in prominence, they could prove to be a key bellwether of economic prosperity in the years ahead. How the Fed reacts to these new, fast changing influences will be watched like hawks by every market and analyst.
Economic Indicators on the Horizon
As the Fed prepares for their next moves, big economic signals are approaching. Later today we’ll get the ISM Services Purchasing Managers’ Index (PMI). Yet it continues to be a critical barometer of economic mood in the U.S. Analysts will be looking at this data. They’re interested in clues about expansion or recession across the service-based economy, which represents approximately 80 percent of the nation’s economic activity.
Depending on how this indicator comes out, it could make a big difference on Fed’s next interest rate hike or pause, and policies on monetary tightening. Alternatively, recessionary prospects might still shock markets even after most likely priced in, as a worrisome reading amplifies doubts about the economy’s ability to emerge from ongoing upheaval.
Speculation has begun to bubble up about a possible pre-election rate cut. A newly inaugurated Republican governor could even back this action at the Fed’s September meeting. This latter possibility underscored the urgency of soon-to-occur leadership changes and their potential impact on monetary policy direction.