President Trump’s nomination of Kevin Warsh to be the next Fed Chair is a relatively safe choice for investors, with Warsh’s prior hawkish views counteracting concerns he might morph into a full-blown stooge. Nonetheless, his desire for the Fed to operate with a smaller balance sheet still presents upside risks to long-term yields. Moreover, his views downplaying the link between inflation and the pace of economic growth as well as his conviction that AI and the Trump administration’s deregulatory push will hold down inflation means there is a risk of the Fed falling behind the curve in the future.
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