Institution: Walsh's Balance Sheet Reduction Plan Requires Long Preparation and Gradual Progress

According to a research report by CITIC Securities, on April 21, the U.S. Senate held a hearing on Walsh’s nomination as Federal Reserve Chairman. Walsh’s statements indicate that he faces a challenging balancing act. On one hand, he needs to ‘please’ Trump to some extent, thus acknowledging Trump’s influence over interest rates; on the other hand, he needs to gain the trust of the market and within the Federal Reserve, emphasizing the mission of price stability and the independence of the Fed. Although Walsh did not perform particularly well when questioned by Democratic senators, this has little impact on whether he can succeed Powell. Walsh’s ability to pass the Senate Banking Committee vote depends on gaining the support of Republican Senator Tillis. We believe Trump is likely to TACO and withdraw the investigation into Powell to help Walsh pass the Senate vote. During the Q&A session, Walsh emphasized that he would not become Trump’s ‘puppet,’ leading the market to lean towards hawkish trading. Walsh’s ideas about reforming the Federal Reserve are particularly noteworthy, especially his suggestion that the Fed needs a new inflation framework and his criticism of the current forward guidance approach. Walsh stressed that the Fed should reduce its balance sheet, using interest rates as the primary tool. However, we still believe that Walsh’s balance sheet reduction plan requires a long preparation time and that the pace of progress will be gradual. (Zhitong Finance)