Mizuho Securities: "Actual rate cuts will be slower than market expectations."
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Pressure to lower interest rates is inevitable when Wash is appointed.
Shoki Omori, chief strategist at Mizuho Securities, recently analyzed in a report that "if Warsh is elected as the new Fed chairman, the market will feel continued pressure to cut interest rates."
Wash served as a Federal Reserve Governor from 2006 to 2011, and is considered to have extensive experience and expertise in monetary policy. Some in the market expect him to pursue an accommodative monetary policy if he is appointed chairman.
An actual rate cut won't be easy... FOMC voting structure is a variable.
However, Omori strategist noted, "Given the voting situation of the Federal Open Market Committee (FOMC) at the last meeting, it will not be easy for Washington to cut rates."
He said, "The market is misjudging the pace of rate cuts," and predicted, "The pace of Fed rate cuts will be much slower than the market expects or hopes."
This analysis suggests that even the new chairman will find it difficult to pursue an aggressive interest rate cut, as opinions within the FOMC are divided over concerns about a resurgence of inflation and the possibility of a soft economic landing.
More moderate than the Hasset… Factors driving up the dollar-yen exchange rate
The Omori strategist also explained that "the market perceives Wash as more dovish than (another candidate) Kevin Hassett, and this is leading to a rise in the dollar-yen exchange rate."
As Wash is considered relatively dovish (preferring easing) compared to Hassett, expectations that the possibility of a future U.S. interest rate cut will increase are driving the dollar's strength.
Ahead of President Trump's announcement of his nomination for the Federal Reserve Chairman, financial markets are closely watching the next chairman's monetary policy stance and the likelihood of his actual policy implementation.
Joohoon Choi joohoon@blockstreet.co.kr
