The prospect of a Trump-aligned Fed chair is rattling the markets

"Hassett's obvious loyalty to Trump and his expected deference to the president are raising concerns among asset managers at an uncertain time. High U.S. debt levels are compounded by warnings about elevated stock market valuations, excessive spending by major tech companies on artificial intelligence, and private credit. Analysts' reports speculating on whether there is a bubble in the AI sector inflating the market circulate daily on Wall Street."

"The appointment of the next Federal Reserve chair comes at a time when storm clouds are gathering on the horizon. Two opposing forces make it difficult to determine whether the storm clouds are a momentary mirage or the prelude to a more violent tempest. Signs of a weakening labor market are becoming increasingly evident, while price pressures have yet to ease. Addressing the first issue would require cutting interest rates; tackling the second issue would require raising them."

Kevin Hassett has emerged as the leading candidate to replace Jerome Powell as Federal Reserve chair, prompting investor unease due to his loyalty and expected deference to the president. Rising U.S. debt, high stock valuations, large tech spending on artificial intelligence, and growth in private credit increase market fragility. Daily speculation about an AI-driven market bubble adds to volatility. The economy faces conflicting pressures: a weakening labor market suggesting rate cuts, while persistent price pressures argue for rate hikes. Warnings from major asset managers and analysts indicate that aggressive rate cuts while inflation remains above 2% could trigger bond sell-offs, dollar depreciation, and erode investor confidence.

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