Hi YXI friends,

The Fed won’t do anything today. They already scripted it in their last meeting. However, we will still see a couple of dissents that call for lower rates, with at least Stephen Miran calling for a 50bp cut.

The Fed won’t cut because it rushed to cut in December despite a lack of data due to the government shutdown, while the latest labour market figures don’t suggest recessional odds.

On the margin, I do think the current market pricing of fewer than 2 cuts this year is on the tight side. Once a new Fed chair is confirmed, there will be more momentum for the doves to push for 2% rates. Speaking of which, it is still not entirely clear who the new Chair may be.

Kalshi puts Rick Rieder of BlackRock at even odds. It is double that of the next highest candidate, Kevin Warsh, but still suggests a coin toss.

The reality is that Trump may not be truly happy with anyone he interviewed, because they could all talk a dovish game to get the job. The new Chair’s tenure will last beyond Trump’s presidency, and the decision is practically impossible to reverse if Trump regrets it.

There is, of course, always the dark horse who has already shown his loyalty - Scott Bessent. Now, that will be a twist that I would not rule out!

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