Major Wall Street advisory firm: Wash’s ‘hawk’ label exaggerated…low odds of aggressive tightening

A new analysis suggests Kevin Warsh, the nominee for the next chair of the U.S. Federal Reserve (Fed), is unlikely to pursue aggressive monetary tightening.

According to Walter Bloomberg on the 12th (local time), Evercore ISI, a major Wall Street investment advisory firm, said in a recent report that “the assessment that Kevin Warsh is a hard-line ‘hawk’ (favoring tightening) on inflation may be overstated.” Evercore ISI added that “it is more appropriate to view the nominee as a pragmatic conservative who distinguishes between supply-driven inflation and demand-driven inflation.”

Warsh’s view is that if productivity improves with the adoption of artificial intelligence (AI) technologies, interest rates can be lowered without stoking inflation. Evercore ISI said “this could act as a factor that reduces the need for tightening policies,” and assessed that “while (Warsh) favors shrinking the Fed’s balance sheet, he is unlikely to embark on aggressive tightening that could rattle markets.”

The report also referenced the Fed’s independence. Evercore ISI noted that “the Fed’s consensus-based decision-making structure will be maintained in an environment of heightened political tension,” while adding that it “could face considerable pressure.”