Trump nominates Waller as Federal Reserve Chair: What signals indicate a shift towards easing policy?

Huatai Macro’s latest research report points out that Trump has officially announced the nomination of Kevin Woor to serve as the next Federal Reserve Chair. This personnel change is seen as an important signal—indicating that U.S. monetary policy may usher in a new policy direction. Woor has long advocated for a flexible policy mix, which also suggests that the Fed’s toolkit may face a reorganization in the future.

How the New Combination of Rate Cuts and Balance Sheet Reduction Will Unfold

After taking office, Woor is expected to implement a combined policy system of “rate cuts + balance sheet reduction.” This combination has not been common in the past; typically, rate cuts and balance sheet reduction are opposing policy directions. However, under the continued support of the Trump administration for capital markets and the maintenance of ample liquidity, this new combination is likely to become a reality. Rate cuts will directly stimulate capital flows and investment demand, while balance sheet reduction can gradually recover the liquidity released during the previous easing, forming a “soft landing” adjustment mode. This is usually a positive signal for the stock market and risk assets.

Short-term Benefits Mechanism for Capital Markets and Liquidity

From the perspective of capital flows, the accommodative policy environment continues to provide abundant liquidity to financial markets. The Trump administration’s stance of supporting capital markets has not changed, meaning that risk assets such as stocks and cryptocurrencies will still have policy support in the medium term. Huatai Macro research indicates that as long as liquidity remains sufficient, these asset classes can maintain upward momentum. However, the costs of this loose policy are gradually becoming apparent.

Challenges to Fed Independence and Long-term Pressure on the Dollar

In the long run, the most challenging issue is that the Fed’s decision-making autonomy may be influenced by political factors. Woor, as a decision-maker more inclined to support government policies, marks a new test for the Fed’s independence. This pressure will ultimately be reflected in the intrinsic value of the dollar—once the Fed’s independence is weakened, the credibility of the dollar as a global reserve currency will be eroded. From a mid- to long-term perspective, the downward trend of the dollar’s intrinsic value is unlikely to change, which will have profound impacts on the global capital flow pattern.