In this “Fireside Chat,” Gavyn Davies, Founder and Executive Chairman and Andy Bevan, Partner and Economic Advisor, discuss the following:
- Several obstacles could complicate and delay the confirmation of Kevin Warsh as the new Fed Chair
- The dovish bias of Warsh on interest rate policy is in large part explained by optimism over the outlook for AI to enhance productivity
- Warsh also favours reducing the size of the Fed’s balance sheet and loosening bank regulation
- Reducing the size of the Fed’s balance sheet would present challenges on interest rate and liquidity management
- The Fed’s current operating procedures provide greater control of short rates and the ability to manage banks’ liquidity needs
- Reform of bank regulation is a necessary precursor to a smaller Fed balance sheet
- The change of Fed leadership would reinforce the underlying fundamental outlook for short rates but the outlook for bond yields is less clear
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