Daily Commentary

MarketMinder’s View: This article covers the Senate’s nomination hearing for Fed Chair Nominee Kevin Warsh, so you know it touches on politics. Please keep in mind as you peruse it that we favor no party nor any politician, assessing developments solely for their potential market and/or economic effects. This hearing and statements from it will get a lot of scrutiny in the coming days, especially in light of President Donald Trump’s spat with existing Fed head Jerome Powell, which many cast as a threat to its ability to set monetary policy free of partisan politics. Warsh’s comments here are interesting on a couple of fronts. One, he reiterated a view that the Fed should be free to set policy without influence from the White House or any politician. But he also said this doesn’t extend to non-monetary policy matters (likely a move designed to give oxygen to the Department of Justice’s investigation into the renovation of the Fed’s offices). And, most interestingly, “Warsh’s speech also features a familiar criticism he has brought in recent years, namely that the Fed on multiple occasions has overstepped its boundaries and reached into areas such as climate change and social inequality. ‘The Fed must stay in its lane. Fed independence is placed at greatest risk when it strays into fiscal and social policies where it has neither authority nor expertise.’” This is a sensible point. The Fed’s independence is intended over monetary matters only, which affect the broad economy via its influence on credit. It has no demonstrated ability to influence matters at the more microeconomic level, like wealth inequality. It seems sensible to us that Fed officials stay out of politicized matters if they wish to retain apolitical standing. But will this stance remain if and when Warsh becomes the next Fed head? We really have no idea, as Fed officials often say one thing in hearings, only to forget everything they knew when in office.

MarketMinder’s View: Another day, more news documenting the fact that Iran’s closure of the Strait of Hormuz is likely to permanently reduce its importance in time. Simply put, people respond to incentives and the oil-producing nations around the Persian Gulf have seen the importance of having alternatives like the Saudia Arabian East-West Pipeline that avoids the blockaded bottleneck. They aren’t likely to miss the lesson here, and there is more and more talk of expanding pipeline networks and finding other workarounds for shipping oil and other goods out of the Strait. For all the skeptical talk about politics getting in the way, we think the financial and economic motivations here will overwhelm in time. This isn’t a fix in the here and now—it will take years. But, “‘The Strait of Hormuz will be less important in 2030 or 2035 than it was in January,’ said Elliott Abrams, who served as a special representative for Iran and Venezuela during the first Trump administration. ‘People will find alternatives.’”

MarketMinder’s View: With the scheduled review of the US-Mexico-Canada trade agreement set to kick off, this is an interesting counterpoint to all the talk that Canada risks being left out of a deal based on acrimony between US President Donald Trump and Canadian Prime Minister Mark Carney. “Mexico will begin its bilateral negotiating round the week of May 25 in Mexico City, a date set after U.S. Trade Representative Jamieson Greer met with Mexican President Claudia Sheinbaum and Economy Secretary Marcelo Ebrard on Monday. [Ontario Trade Representative David] Paterson suggested Canadians shouldn’t worry that there’s no date yet for U.S. negotiations. ‘Mexico is a much harder list than we are, so it makes sense that they’re further along,’ Paterson said. ‘You’re dealing with cartels, you’re dealing with borders, you’re dealing with all kinds of really important things.’” Anyway, amid a lot of hot rhetoric ahead of talks, this is a breath of fresh air.