February 12, 2025 | Premium Service | Update: Last night President Trump sent to the Senate the nominations of Jonathan Gould to be comptroller of the currency and Jonathan McKernan to be director of the CFPB, according to news reports. This is interesting because McKernan reportedly wanted OCC, but is now tasked with the abolition of CFPB. Gould looks like a permanent hire at OCC. Both will easily be confirmed.And now maybe Fed Gov Miki Bowman goes to FDIC? Opens a Fed governor slot for Trump, who could then appoint that nominee Fed chairman. Jerome Powell would remain a governor.
The thundering herd on Wall Street is piling back into all manner of assets, confirming our view that the amount of residual liquidity in the US financial system has essentially forestalled further interest rate cuts. Yesterday Fed Chairman Jerome Powell said that "there is no hurry to adjust interest rates."
Can we have double-digit loan growth in 2025 and still be worried about a recession? Yes we can. But don't make the mistake of thinking that the outlook for the US economy and interest rates is clear cut with President Trump in the White House. Treasury Secretary Scott Bessent may be the only person in the Trump Administration thinking about LT government bond yields. And White House Chief of Staff Susie Wiles has largely eliminated all flow of information to the public about the transition process.
Looking at strong market activity in both the banking system and the bond market in Q1 2025, we can see more possibility of a rate increase later this year than a rate cut. The little hint in that regard is that fact that the Fed is continuing with balance sheet reduction (a/k/a quantitative tightening or QT) despite the earlier protestations about ebbing liquidity from Dallas Fed President Lori Logan.
