Yesterday’s Commentary discussed Trump’s inclusion of Kevin Warsh in the race for Federal Reserve chair. Today, we compare some key differences between Kevin Warsh and Kevin Hassett. Understanding what each contributes to the Fed helps us better assess their effects on capital markets.
Kevin Warsh was a Fed Governor from 2006 through 2011. We learned that Kevin Warsh believes the Federal Reserve should play an integral role in supporting the economy and financial markets during a crisis. However, unlike many Fed members, he is not a fan of using QE in a more normal market environment. To wit, he once referred to QE as a “reverse Robin Hood.” Furthermore, he has stated that QE misallocates capital from the economy to the financial markets.
Kevin Warsh began his career on Wall Street; therefore, he has a better understanding of capital markets and the Fed’s impact on them. Hassett has been a lifelong economist, both as an economics professor at Columbia and in various high-level economic roles in the government. Like many Federal Reserve members, he lacks real-world experience.
Warsh is viewed as more hawkish than Hassett. He has frequently mentioned the inflation risk associated with dovish monetary policy. Moreover, as we noted above, he has expressed skepticism about aggressive QE. Conversely, Hassett, viewed as dovish, actively advocates deeper rate cuts to stimulate growth.
Kevin Warsh adheres to a Milton Friedman-style logic: inflation is a function of excessive money-supply growth. Based on recent speeches, Hassett is focused on growth-oriented easing and is not overly concerned with inflation.
Hassett likely appeals more to President Trump because of his dovish views. However, Kevin Warsh lends greater credibility to the Federal Reserve’s promise to reduce . Additionally, Warsh is more likely to improve sentiment in the bond market, thereby lowering long-term yields.
BLS And ADP: Signs Of Recovery In The Labor Markets?
For the first time in over two months, the BLS updated its labor market status report. Due to the shutdown, this report shared data from October and November. fell by 105k, while they rose 64k in November. Net, net, the jobs market is poor, but the gain in November may give some hope that the trend is reversing.
Also of note, the rose to 4.6% from 4.4%. Interestingly, the , a more inclusive measure of unemployment, rose sharply from 8.0% to 8.7%, as shown in the top graph below.
, in its new weekly reporting format, says the economy added 16k jobs last week, following a gain of 2k in the prior week. The near-real-time data corroborate the November BLS job gain. However, we are in the midst of volatile holiday employment activities, thus the data will likely be revised in the future.
The second graph below shows that, using revised BLS data, ADP and BLS track closely. Assuming this continues, the weekly ADP reports will serve as a useful near-real-time gauge of the labor market.
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