The current narrative in the market is that when Trump nominates the new Fed Chair, the expectations will be skewed towards a more dovish Fed. This in turn will likely lead to a lower US dollar, higher long-term Treasury yields and higher stock prices.
The narrative might be skewed more by emotions rather than objective thinking though. The FOMC policy is not decided by the Fed Chair alone. It's decided on a majority basis from 12 voting members (7 governors and 5 regional Fed banks presidents). The Fed Chair is without a doubt highly influential but does not have the sole control over monetary policy. The Fed is designed to be independent from political pressure.
Moreover, it's not even assured that when Trump nominates the next Fed Chair, it will automatically lead to rate cuts. Let's not forget that Powell was nominated by Trump and he did what he thought was the right thing for monetary policy regardless of what Trump wanted.
So, what might actually happen in the worst case scenario is that we will get policy uncertainty as members in the FOMC disagree with each other and we start to see lots of dissent. Right now, there are just a couple of dovish members and those on the neutral/hawkish camp dwarf them easily.
I would continue focusing on the economy and how the evolution of inflation will shape interest rate expectations and future Fed policy
This article was written by Giuseppe Dellamotta at www.forexlive.com. Read More Details
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