If Kevin Wosch becomes the Chair of the Federal Reserve, it could lead to a different monetary policy.

He is also among the highly educated—he graduated from a top school. His wife is an heiress of the Estée Lauder family. Previously, he served as a Federal Reserve governor. During the George W. Bush administration, he was the Secretary of the White House Economic Council and took part in handling the 2008 financial crisis. He also has close ties with Trump.

His policy is something the Federal Reserve has been relatively rare in for many years: shrinking the balance sheet while cutting interest rates. He believes inflation is caused by excessive money issuance, so he would shrink the balance sheet while lowering interest rates—providing the necessary liquidity, suppressing inflation, and increasing liquidity.

Once he takes office, he should cut rates to align with Trump—of course, he would also shrink the balance sheet. This is essentially two opposing directions that need to be addressed. The point that must be dealt with is: when shrinking the balance sheet, who will the U.S. Treasuries be sold to? Naturally, it would be the institutions that are ready to take them. Why would those institutions take them on—that may require Trump to push it, and in addition, it’s necessary to maintain a strong U.S. dollar and U.S. Treasury hegemony.

Judging from the situation after the U.S. finishes its actions against Iran this time, it will be difficult. Since the U.S. is now blocking the Strait of Hormuz, Iran’s oil can’t be shipped out. This could lead to oilfields being shut down. To restart the shut-down oilfields takes a few months, which would bring oil prices back to around 108. The market has already used prices to “vote.” High oil prices lead to exported inflation—inflation that gets transmitted outward—and Wosch’s playbook may not be able to handle this situation.

Let’s wait and see after he takes office.
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