The rumors of Scott Bessent as future Fed Chair are intriguing

We are not the only oddball worried about the Fed cutting too soon. Everybody else is cutting (except Japan, dragging its heels on a hike). The super-smart Donnelly writes “If inflation is rolling over in the US and economists (and the market) have overestimated the inflationary shock from tariffs, Fed Funds are quite high.

“Neutral is closer to 2.5% or so, depending on how you measure it. The rumors of Scott Bessent as future Fed Chair are also intriguing. Global policy rates tend to move as a pack, and the Fed is behind its peers due to USA-specific uncertainty and higher, stickier inflation. I would attach a higher weight to upcoming Fed speeches—a dovish pivot might be on the horizon soon.” His emphasis.

We are intrigued by the idea that Trump will name his replacement for Powell someday soon, and whoever it is will have to be dovish by definition. The market would like Bessent. So far Bessent has been the only cabinet or staff member with a modicum of education and brains to restrain Trump. The TreasSec is not usually a member of the trade negotiating team, for example. The previous favorite, Warsh, might be okay, too, Bottom line, the announcement effect of a new Fed chief would send the stock market flying.

Forecast

We have a dozen reasons for risk aversion to rule today. Most of them arise from Trump’s erratic and often downright stupid utterances, the latest of which is he will simply dictate tariffs in two weeks to everyone and they can take it or leave it. The deal with China is not a deal, and what can he mean when he says Iran can’t have a nuclear weapon?

No wonder the dollar index is going to “historic” lows. It’s interesting that two days earlier, we had a USD/CHF buy signal. Granted, it was two of five indicators but enough to be scary.

We hate to say it, but watch the stock market. Those Chicken Littles got spooked by the two-week outrage plus Iran and oil prices, but on the whole, want to ignore Trump and even lowered earnings to keep on trucking. We suspect they will come back today, which will reduce the pressure on the yields and the dollars. After all, the 10-year auction was well received yesterday and the 30-year today will likely get the same treatment. The stock market is not the economy and vice versa—the economy is not the stock market.

Having said that, Trump needs an unending supply of shocks to distract attention from his use of the military on US soil and against US citizens, which everyone knows is unconstitutional in the absence of an insurrection. So, we are back to tigers and stripes.

Tidbit: Bloomberg economists continue to report that China has the upper hand vs. the US.  “Washington’s concerns about China’s expanding restrictions on critical minerals exports” were a key factor in bringing the two sides to the table in London, the team wrote in a note.

“China is the top producer of at least 30 out of 50 minerals identified as critical to US interests and has dominance over rare-earth refining and magnet production with about a 90% of global share…

“Beijing may loosen certain restrictions or grant more licenses temporarily but it will probably maintain its newly established export control framework, allowing it to quickly reinstate measures if needed. These controls also enable China to gather valuable information from US and Western firms required to submit detailed product and supply chain data for licensing — sharpening China’s understanding of Western dependencies.”

Bottom line, Xi is playing a long game and has at least three aces.

Tidbit: This Saturday is the Trump birthday parade (er, 250 year celebration of the Army). Bloomberg “the Army estimates [it] may ultimately cost as much as $45 million. That amount includes about $16 million budgeted for possible street repairs that will be needed after more than seven dozen Abrams tanks, Bradley fighting vehicles, Stryker combat vehicles, self-propelled howitzers, a World War II-era bomber and other weapons of war make their way along Constitution Avenue from the Lincoln Memorial to Trump’s reviewing stand near the White House. The birthday flex also reportedly includes scores of aircraft and at least 6,600 soldiers. Fireworks, parachutists, concerts and a fitness contest are scheduled for the National Mall and elsewhere.”

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