NEW YORK, April 24 (Reuters) – The Justice Department is closing its investigation into Federal Reserve Chair Jerome Powell, U.S. Attorney Jeanine Pirro said on Friday, removing an obstacle to the confirmation of Kevin Warsh, President Donald Trump’s pick to lead the central bank.
The criminal investigation into Powell had stalled Warsh’s confirmation after a Republican senator, Thom Tillis of North Carolina, vowed to block all Fed nominees until the DOJ ended what he called a baseless investigation.
The dollar and Treasury yields declined on the news, with short-term Treasury trading showing an expectation that the news could mean quicker policy easing by Warsh, who has stated he believes interest rates should be lower. U.S. stocks were mixed after the announcement, largely in line with their trading beforehand, though a sharp rally in chip stocks sent the Nasdaq up more than 1%.
COMMENTS:
NOAH BUFFAM, DIRECTOR, FICC STRATEGY, CIBC CAPITAL MARKETS, TORONTO:
“Warsh is a little bit more dovish than Powell. At his hearing earlier this week, he emphasized trimmed and median measures of inflation, versus where Powell would often emphasize core, which is more just ex-food and energy. Trimmed and median are a little bit weaker than core, so the market’s reading this as Warsh is going to emphasize these weaker inflationary measures and it could lead to him trying to get through more cuts than Powell would have. So, right now the market’s reading this as a little bit dovish. The December Fed meeting is five basis points lower on the day so that’s causing the dollar to sell off a little bit.”
TOM PLUMB, PORTFOLIO MANAGER, PLUMB BALANCED FUND, MADISON, WISCONSIN:
“The main thing was that this was a big impediment for the Federal Reserve hearings on having the new chairman. I think that would add a lot of certainty if we can move ahead on that. They did drop it, but they also said they were waiting for a report. But I have a feeling that this was a nice way for them to just drop it. It was politically unpopular. Members of Congress said they didn’t see a crime. I think it’s very positive for reducing one uncertainty.”
BRIAN JACOBSEN, CHIEF ECONOMIST, ANNEX WEALTH MANAGEMENT, MENOMONEE FALLS, WISCONSIN:
“With the DOJ investigation closing, Warsh can now be considered the Chair-In-Waiting. He won’t be a sock puppet of the President, so a few months from now we could see some social media posts complaining about how Kevin isn’t cutting rates.
“Warsh’s doctrine of ‘less is more’ when it comes to communication from the Fed could mean that policy announcement days are going to have a lot more volatility than in the past. Markets will still hang on every word of FOMC voters, but if there are fewer words to hang on, that creates more opportunities for surprises. That could push market rates higher, embedding a jump-scare premium to reflect the risk that the Fed can do the unexpected.”
(Reporting by Karen Brettell, Chibuike Oguh, Chuck Mikolajczak; editing by Colin Barr)
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