Episode summary
Dylan Jovine | Rates, Inflation & U.S. Debt: Trump’s New Fed Pick Could Decide the Future
Summary
Dylan Jovine argues that Kevin Warsh would be a strong choice to replace Jerome Powell because he has experience at the Fed, credibility on Wall Street, and the independence needed in a politically fraught moment. He says the next Fed chair cannot simply follow presidential pressure, because that could turn the central bank into a political instrument and worsen inflation.
The core challenge, according to Dylan Jovine, is that the Fed is trapped between conflicting risks. If it cuts rates too quickly, bond buyers may step away and push long-term yields higher; if it moves too slowly, the economy could weaken unnecessarily. He says investors are already skeptical about long-term Treasuries because inflation is running above the return on many bonds.
He also stresses the scale of the U.S. funding problem, describing roughly $2 trillion to $3 trillion in new debt and about $10 trillion in short-term debt coming due this year. With global governments issuing more debt and demand for Treasuries softer, he says the Fed has increasingly become the buyer of last resort. That makes judgment, character, and a long-term view essential in the next Fed chair.
Key takeaways
- Dylan Jovine says Kevin Warsh is attractive because he has Fed experience and Wall Street credibility, which matters when the central bank is a major bond buyer.
- Dylan Jovine warns that cutting rates too fast could trigger a bondholder 'buyer strike' and push long-term interest rates higher.
- Dylan Jovine says the U.S. may need buyers for about $13 trillion in debt this year, combining new issuance and maturing short-term obligations.
- Dylan Jovine argues that political pressure on the Fed could recreate the kind of inflationary damage associated with Arthur Burns and Nixon.
- Dylan Jovine says he is buying only short-term Treasuries because he believes inflation is higher than reported.
Notable quotes
“I'm a big fan of this choice. And believe me, he faces a tough job”
“You don't want somebody running the Fed who just follows whatever the president says, because after this president, there'll be another president”
“You can actually get a spike in long-term rates if he cuts short-term rates, the fed funds rates, too quickly because buyers are just gonna walk away”
“I am a bond buyer, but as I said the other day, I'm only buying short term treasuries, anything under a year”
How the episode opens
Good morning. This is Dylan Jovine with Behind The Markets. Happy Monday.
Today is Monday, February 2nd. Welcome to February. I'm very excited.
This week is career day at my son's school, his elementary school. So I'll be going there, talking about what I do for a living and hoping these kids don't fall asleep while I do it. Anyway, today I'd like to talk about President Trump's pick to head the Federal Reserve, to replace Jerome Powell at the end of his term, and that is Kevin Warsh.
I'm a big fan of this choice. And believe me, he faces a tough job. I like Kevin because he's worked at the Fed.
He also has Great Wall Street experience, big, big experiences during the financial crisis. He was a serious player. Has a lot of respect, both on the policy side and on the Wall Street side, which is very, very, very important, especially when the Fed is such a big buyer of bonds.
It's such a big market participant right now, which is unusual. Look, this is a very important role. You don't want somebody running the Fed who just follows whatever the president says, because after this president, there'll be another president.
And let's say that other president has policies that you don't like. All of a sudden you could turn the Fed into something that is just a political animal, which really could blow inflation even worse than we're experiencing right now. So look, i'm happy with the choice.
I think that anyone who would've took the job would've been likely to cut rates in the short term. But I think he's going to be good for the long term. But look, it's also important to remember, the Fed faces a very challenging situation here.
Uniquely challenging, actually.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- fed chair nomination
- rates and inflation
- u.s. debt and treasury rollover
- political pressure on central banks
- global debt markets
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Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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