‘Interest rate cut in December at the end of Powell’s term’
There is a good chance that the Federal Reserve will make one more interest rate cut in December. For Mark Dowding, CIO at RBC BlueBay AMthis is above all the final part of Jerome Powell’s term: a final technocratic act to maintain peace and predictability, not a sign of political concession.
Attention now shifts to his succession. Kevin Hassett seems to be the leading candidate, but according to Dowding, markets overestimate the extent of the policy differences between the possible successors. “Whoever heads the Fed serves four years; a president can exert direct pressure for a maximum of two years. This makes the reputation of the institution more important than political preference.”
There is also a lack on the Republican side Dowding the incentive to intervene. “Easing too quickly would increase the risk of rising inflation, while ‘affordability’ becomes a key issue heading into the midterms. The new Fed chairman therefore has every reason to stick to an orthodox line.”