FED: Bessent Hints At Miran Replacement On Board, Major Fed Reform Ahead (1/2)
Dec-23 20:13
Treasury Secretary Bessent covered multiple topics of interest on the future of the Federal Reserve in a recording of the "All-In Podcast" out Monday.
- The first point of interest was a hint that the White House would select a non-current Fed official as its next Fed Chair. Bessent, who is leading the search on behalf of the White House, said that Fed Gov Miran will be "going back to CEA [White House Council of Economic Advisers], probably in February or March".
- Miran went on leave as chair of the CEA in September to take up the Fed Board seat that was left vacant by the resignation of Gov Kugler. His term expires at the end of January and Miran himself has said in the last week that he hasn't discussed with President Trump whether he would stay at the Fed or if the slot would be used by the next Fed Chair, noting "until somebody else is confirmed for my seat, I anticipate I would continue in that seat until somebody is confirmed."
- Miran seems content to stay. So it may simply be that the White House wants Miran back at the CEA, and/or they want a different face on the Board.
- Either way, Bessent appears to be hinting that they will need that slot to bring in the Fed Chair candidate (2 of the 5 shortlisted candidates for Fed Chair are already on the Board - Waller and Bowman - so wouldn't require an additional seat). Otherwise the next likely available slot is only in May when Powell may resign his Board seat upon the expiry of his term as Chair, unless of course Gov Cook's firing is upheld in January's Supreme Court decision.
- We take note that implied prediction market probabilities for National Economic Council director Hassett to be named Chair have picked up slightly since the interview (currently at 58%). The nomination is expected to be revealed in early January.
- On criteria for selecting the next Fed Chair, Bessent also hinted that he was eyeing an outsider (possibly Hassett, or in saying he is looking for "someone with an open mind", citing the example of Alan Greenspan's "magnificent job, because he had an open mind that the internet office modernization boom was going to create a productivity bonanza for the US economy. And he let the economy, he let it rip, and we had an incredible economy."
- He notes that of the shortlisted Chair candidates, all have an appetite for fundamental Fed reform: "I think many of them have already come out and said that they do want to shrink [the Fed], both as the footprint of the institution and the economy, but shrink the institution itself...each one of them has talked about moving back toward the more traditional Fed role, just getting the Fed back into the background. It wasn't meant that the market and the economy and the American people were supposed to hinge on every word. It was supposed to be a predictable process."
Want to read more?
Find more articles and bullets on these widgets:
Historical bullets
RATINGS: Moody's Upgrades Italy To Baa2 From Baa3, Still A Notch Below Others
Nov-21 21:46
The Moody's upgrade to Italy's credit rating announced late Friday was the first from the agency since 2002 but shouldn't be considered a major surprise. Among the 3 major ratings agencies, Moody's had the lowest rating on Italy - by two notches (Fitch and S&P both BBB+).
- So this upgrade to Baa2 from Baa3 represents something of a closing of that gap rather than a major breakthrough for Italy.
- From the release:
- "The rating upgrade reflects a consistent track-record of political and policy stability which enhances the effectiveness of economic and fiscal reforms and investment implemented under the National Recovery and Resilience Plan (NRRP). It also points to prospects of further policy actions supporting growth and fiscal consolidation beyond the plan's deadline in August 2026. As a result, we expect that Italy's high government debt burden will gradually decline from 2027 onwards."
FED: Heading Into Its Final Weeks, QT Pace Remains At $20B/Month (2/2)
Nov-21 21:03
On the asset side of the Fed balance sheet, we saw a $25B drop in assets, of which just $2B could be attributed to QT in one of its final weeks (ends Dec 1).
- Instead it was a $6B drop in dealer repo operations vs a week earlier, and $17B in "other" areas that aren't related directly to monetary policy and typically don't have any significant impact on the size of the balance sheet (such changes are largely due to items such as bank premises, accrued interest, and other accounts receivable.)
- Discount window takeup edged up $0.3B to $6.1B but remains relatively low.
- QT has totaled just under $21B over the last month, around the expected pace, though as noted this will flatline in December with a pickup in net bills as MBS proceeds are rolled over into T-bills.
LOOK AHEAD: US Week Ahead: Retail Sales, PPI & Claims Headline Thanksgiving Week
Nov-21 21:01
A Thanksgiving-condensed week sees data highlights from delayed retail sales and PPI reports for September on Tuesday (Nov 25) before a Wednesday release for weekly jobless claims (Nov 26). Aside, the Fed’s Beige Book should also offer another important update on Wednesday for latest liaison reporting, with no Fedspeak currently scheduled around the holiday and the FOMC media blackout due to start on Saturday, Nov 29.
- As we regularly comment in this weekly publication, Redbook and Chicago Fed CARTS indicators point to solid nominal growth in retail sales, something broadly reflected in analyst consensus for the release.
- PPI inflation will offer a useful albeit not overly timely update on input cost pressures.
- Jobless claims will be watched particularly closely, both for latest initial claims for signs of layoffs and a notable update for continuing claims. The latter covers the payrolls reference period for November and will be an important reference point for FOMC members trying to get a sense of latest unemployment rate clues with the next payrolls reports coming after the Dec 9-10 FOMC decision (going into it with this week’s 0.12bp rise to 4.44% back in September).
