Powell "Succession" Expectations Heat Up: Market Worries about Fed Independence Erosion, Rate Cut and Tapering Path Enters Turmoil
BlockBeats News, April 28th – According to a recent CNBC survey, following the conclusion of Kevin Warsh's nomination hearing, the market's divergence on his future policy direction as the head of the Federal Reserve has become more pronounced.
The survey, which covered 26 economists, strategists, and analysts, showed that only 50% of respondents believe Warsh can maintain a high level of policy independence, while 46% believe his independence is limited or even lacking. However, compared to the previous month, the proportion of those recognizing his independence has increased by 13 percentage points, indicating that the hearing has somewhat eased market concerns.
In terms of policy expectations, 58% of respondents believe that Warsh overall leans towards being "dovish," inclined to support rate cuts. However, 65% also believe that he will take a "hawkish" stance on balance sheet reduction, accelerating the reduction of the Fed's assets.
The market is particularly concerned about Warsh's previous remarks on "realigning the Treasury Department and the Fed's balance sheet management." Analysts warn that this could shake the foundation of the fiscal and monetary policy separation framework established in 1951, weakening the Fed's long-standing independence.
Regarding the current balance sheet size of around $6.7 trillion, 41% of respondents expect that Warsh's first-year reduction scale may reach around $800 billion after taking office. However, 46% also believe that it may be difficult to make real progress in the short term.
In addition, concerning the impact of AI on inflation and productivity, Warsh advocates for policy pre-positioning rather than waiting for data confirmation. However, as high as 81% of the surveyed experts believe that the Fed should still base its decisions on actual economic data. In the short term, the potential long-term deflation brought about by AI is not sufficient to support a rapid shift to loose monetary policy.
