Speaking on the Power Lunch program on CNBC, Jefferies chief market strategist David Zervos said that a possible power struggle at the Fed could have positive effects on the stock market.
According to Zervos, changes in the Fed's structure could result in a president who advocates lower interest rates, which could create a positive environment for markets.
Zervos noted that the term of current FED Chair Jerome Powell will end in the spring of 2025, and that President Trump could appoint at least two new members during this period. In this case, he noted that four members of the FED's seven-member board would have been appointed by Trump. Zervos argued that this majority is likely to support a more “pro-growth” economic agenda.
Zervos, who said the new FED chairman could adopt lower interest rates, gave the example of Alan Greenspan's low interest rate policies in the 1990s. “The risks Greenspan took at that time were ultimately proven right. The new chairman may be inclined to take similar risks,” said Zervos, adding that this situation could support risky assets such as technology and growth stocks.
The program also noted that markets’ interest in Jerome Powell’s rhetoric has begun to wane. Zervos said that the fact that markets have not shown a significant reaction despite Powell signaling an interest rate hike at his latest press conference is evidence of this. “Markets are now starting to focus on who the next president will be and what he will do,” he said.
Zervos also noted Trump's strategy of neutralizing figures he didn't like during his time in office, suggesting that Powell was gradually being sidelined in this way. However, he noted that markets were not making any significant distinctions between the new presidential candidates at the moment, and that these names were only seen as potential for now.
*This is not investment advice.
