Seth Carpenter, Morgan Stanley's Global Chief Economist, discusses the speculation surrounding a potential "shadow Fed chair" before Jerome Powell's term expires in May of the following year. He analyzes President Trump's criticism of Powell's monetary policy and the resulting uncertainty about Powell's successor. Carpenter explains that while market pricing and Morgan Stanley's base case predict a less aggressive rate cut than President Trump desires, the Fed's internal dynamics and group decision-making process are likely to prevent sudden policy shifts, even with a new chair. He explores the possibility of a "shadow chair" influencing policy before officially assuming the role and discusses the various scenarios and their potential impacts on the market, emphasizing the ongoing importance of the Fed chair's role in setting the tone and guiding policy decisions. Ultimately, Carpenter concludes that while the "shadow chair" debate is currently a secondary concern, political factors pose a greater risk to the Fed's economic forecast.
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