Recently, U.S. President Donald Trump announced that he would nominate a candidate for the next Federal Reserve (Fed) Chair, introducing the 'Shadow Fed Chair' strategy. This implies presenting a de facto successor before the official appointment to implicitly convey the policy direction to the market.
On the 1st, President Trump said, 'I have 2 to 3 candidates in mind for the Fed Chair,' mentioning the successor to Jerome Powell. As Powell's legal term lasts until May next year, about 10 months from now, there are concerns that a new chair could be elected sooner, potentially causing a rapid shift in the Fed's currency policy direction.
Changes in U.S. currency policy have immediate effects not only on global stock and bond markets but also on exchange rates. They are significant variables for Korea's economy, which is highly dependent on exports.
Until now, the Fed has shown a cautious attitude toward lowering interest rates, citing that the inflation rate is higher than expected. Since last December, the Fed has not lowered the base interest rate of 4.50% even once.
Despite pressure from President Trump to lower interest rates, the Fed expressed concern that high tariff policies could increase inflation rates. Chair Powell responded to the question, 'Would you have lowered interest rates further if there had been no tariff policy?' by saying, 'I think so,' indirectly criticizing Trump's tariff policies.
The market expects that even if a new chair is appointed within the year, it will be difficult to anticipate immediate changes in currency policy.
Global investment bank Morgan Stanley analyzed, 'Even if a shadow chair emerges this summer and sends public messages, it will be difficult for it to lead to immediate policy changes,' adding that 'the Federal Open Market Committee (FOMC) decisions are made by committee votes, and the influence of a single individual is limited.' It also noted, 'There have been past instances where politically appointed individuals focused on independent and neutral currency policy execution, reducing the likelihood of abrupt policy changes.'
In summary, it suggests that changes in economic indicators, price trajectories, and employment trends will act as key variables for Fed policy until the end of Powell's term, rather than the 'shadow chair' debate.
The first indicator to check is the consumer price index (CPI) for June, which will be announced on the night of the 15th. It will reveal the inflation effects of Trump's tariff policies. If the CPI is higher than expected, uncertainty regarding the anticipated interest rate cut in September may increase. According to Bloomberg, last month, the core CPI is estimated to have risen by 2.9% compared to the same period last year, while the overall CPI is expected to have increased by 2.6% during the same timeframe.
Park Sang-hyun, a researcher at iM Securities, said, 'As Chair Powell emphasized, the Fed is currently in a position where it must monitor tariff risks for the time being,' adding, 'If tariff uncertainties are resolved, it may move to lower rates in September, potentially by 50 basis points instead of 25 basis points (1 basis point = 0.01%).'