As we discussed in my last note, Jerome Powell may have officially become a lame duck Fed Chair last week (functionally weakened). And a "shadow Fed" may now be a reality, and with meaningful influence on markets.
Remember, it was the interview with Kevin Warsh (a Trump candidate to replace Powell) last Thursday that might have been the inflection point.
It's only Monday, and already the drumbeat for Fed regime change has grown louder.
Before markets opened today, Treasury Secretary Scott Bessent gave an extended interview on CNBC. Later in the morning, Judy Shelton—once floated (and possibly again) for a Trump Fed appointment—joined with Fed criticisms.
The theme from Warsh, Bessent and Shelton is that the Fed is intellectually stale, politically unaccountable and out of step with the current environment.
Worse for Powell, there is now a vocal dissenter inside the Fed. Not only is Chris Waller publicly making the case for a rate cut at this month's meeting, he shares the view of Warsh, Bessent and Shelton, that the Fed is fundamentally wrong on the inflationary influence of tariffs.
Asked Friday if he would take the Fed Chair job if offered, and Waller said "yes."
So, over the past five days, Warsh has called for regime change at the Fed. Shelton has questioned Powell's independence. Bessent has called for an overhaul of the Fed. And Waller (a colleague of Powell) has said he would take the job.
What does it all mean?
The market is hearing a policy outlook of lower rates and non-inflationary growth, driven by productivity gains associated with AI.
And its hearing policy alignment: monetary policy that would by synchronized with fiscal and industrial policy.
And if the market is listening, that means Jerome Powell's voice is being diluted.
