Fed 'Hawkish' Governor Abruptly Resigns... Will Trump Speed Up Next Chair Nomination?

Donald Trump, the U.S. President who has been pressuring Federal Reserve (Fed) Chairman Jerome Powell to cut rates, may be able to nominate the next Fed Chair sooner than expected. This comes after Adriana Kugler, a Fed Governor known for her cautious stance on rate cuts, suddenly resigned. Because of her departure, Trump can seat a new pro-Trump figure on the Board without waiting for Kugler's term to expire. There is speculation that the new governor could become the practical 'next Fed Chair candidate.'

The Fed announced on the 1st that Kugler will step down from the Fed Board on the 8th of this month. Kugler, considered a hawkish (monetary tightening) figure within the Fed, was appointed as a governor in September 2023 during the Joe Biden administration and was set to finish her term at the end of January next year. The reason for her resignation is unknown.

On this day, Kugler sent a letter of resignation to President Trump, who commented, "I am very pleased." He also posted on his own social media, Truth Social, "She (Kugler) knew he (Powell) was making the wrong decisions about interest rates (so she resigned)" and insisted, "He should resign too." That morning, he also used Truth Social to call for Powell's dismissal from the Fed Board.

With Kugler's sudden resignation, some analysts say Trump's 'Fed shake-up' could intensify even further. The successor to Kugler's seat may be appointed by President Trump, and if so, the number of Trump-appointed members on the Fed Board of seven will rise to three, including Vice Chair Michelle Bowman and Governor Christopher Waller. When the Fed held rates steady at last month's FOMC, Bowman and Waller both dissented, causing a notable division in the Board for the first time in about 30 years.

Also, since Powell's term as Chair is set to end in May next year, Trump now has a chance to bring in a candidate for the next Chair ahead of time. Noting that Powell could remain on the Board as governor until 2028 even if he steps down as Chair, Tobin Marcus, Chief U.S. Policy and Politics Strategist at Wolfe Research, told Bloomberg, "This may be Trump's only chance."

Apart from Trump's pressure, the U.S. central bank is now facing deeper concerns about interest rates. That's because the employment report released by the U.S. Department of Labor on the 1st showed that the labor market is rapidly deteriorating. In July, U.S. nonfarm jobs increased by 73,000 from the previous month, falling short of Dow Jones' expert forecast (increase of 100,000). The increases for May and June were revised down by a total of 258,000 from previous announcements. John Williams, President of the Federal Reserve Bank of New York, told The Wall Street Journal, "The labor market is gradually cooling but remains healthy."

However, the market already considers a September rate cut almost certain. According to the FedWatch Tool from the Chicago Mercantile Exchange (CME), as of the 3rd (local time), the probability of the Fed cutting rates by 0.25% point is estimated at 80.3%. Just a week ago, it was 61.9%. Rick Rieder, BlackRock's Global Fixed Income CIO, forecasted in an investor note on the 1st, "If even a little slack builds up in the labor market or monthly job growth continues below 100,000, the Fed will start cutting rates, and depending on future indicators, a 0.5% point cut in September could also be possible."

By Hankyung Insight Reporter