The Committee reacts to the DOJ dropping its investigation into Fed Chair Jerome Powell

Summary

The Investment Committee reacts to the DOJ dropping its criminal investigation into Fed Chair Jerome Powell, clearing the way for Kevin Warsh's confirmation as next Fed Chair. They debate the implications for rate cuts, balance sheet policy, and the potential for inflation from the Strait of Hormuz disruptions versus AI-driven productivity. The consensus is that rate cuts are not needed soon and the market does not expect cuts until mid-2027.

• DOJ drops investigation into Powell, removing obstacle for Warsh confirmation.
• Jim Lebenthal calls the investigation a waste of time and says the economy is strong, no rate cuts needed.
• Steve Liesman reports the two-year yield dipped on news but remains elevated, and fed funds probabilities show less than 50% chance of a cut by July 2027.
• Jenny Harrington warns of severe inflation risk from stalled supply chains through the Strait of Hormuz, possibly forcing rate hikes.
• Kevin Simpson says oil at $70-90 is absorbable but a spike to $150-200 would trigger a rate hike debate.
• Liesman argues AI investment demand for capital puts upward pressure on interest rates, supporting no cuts.
• The committee expects a fractious FOMC debate if Warsh pushes for rate cuts while other members see inflation risks.
• Warsh's desire to shrink the balance sheet may offset some rate-cut effects, taking longer to implement.