Q4 Earnings Highs And Lows: Truist Financial (NYSE:TFC) Vs The Rest Of The Diversified Banks Stocks

By Megan Leonhardt

Kevin Warsh, President Donald Trump's nominee for the next chair of the Federal Reserve, may be a pick out of "central casting," as the president says. But some economists are skeptical that he will deliver interest-rate cuts quickly, while keeping the central bank's goals of price stability and maximum employment in balance.

In the past year, labor conditions have weakened, while annual inflation has been much closer to 3% than the Fed's 2% goal. Warsh, if confirmed, will inherit this economic reality, which could make it difficult to realize Trump's vision of dramatically lower interest rates.

The challenge will come, in part, because the chair is only one of the 12 members of the Federal Open Market Committee who vote on monetary policy, including changes in interest rates. Warsh will need to build a coalition to meaningfully alter the current policy path, says Olu Sonola, U.S. head of economic research at Fitch Ratings. That may be challenging, given the current makeup of the voting members of the Fed, several of whom are seen as much more hawkish, or wary of cutting rates while inflation remains elevated.

Dallas Fed President Lorie Logan and Cleveland Fed President Beth Hammack both have stressed the risks around easing rates early while inflation remains above target. Minneapolis Fed President Neel Kashkari, also voting this year, was seen as one of the committee's dovish voices, but lately has focused more on the persistence of inflation. All three voted to keep interest rates steady at the Jan. 27-28 policy meeting.

Only two FOMC members, Fed governors Christopher Waller and Stephen Miran, voted to lower interest rates at the meeting. Waller said in a statement on Friday that the economic data around labor conditions make it clear that further easing is needed. Vice Chair for Supervision Michelle Bowman, who voted with the majority to keep rates steady, is also seen as a more dovish member.

"Warsh — like any other pick — has an uphill climb to convince the rest of the FOMC of his vision for monetary policy, which isn't readily apparent," says Mike Skordeles, head of U.S. economics at Truist Advisory Services. "Ultimately, while the Fed chair is certainly important, many other factors are more important to economic growth."

Fed chairs aren't "all powerful," says Jonathan Pingle, chief U.S. economist at UBS. Pingle noted that the longest-serving Fed chair, William McChesney Martin Jr., won policy votes by only a single vote, while Paul Volcker once lost a policy vote.

Yet as Trump's nominee, Warsh is expected to bring a more nuanced approach to the Fed's leadership, particularly as he has expressed skepticism that the Fed is an "all-powerful, all-knowing institution," writes Jai Kedia, Cato research fellow at the Center for Monetary and Financial Alternatives. That could be a positive sign for critics who have long held that the Fed is too slow to act.

Still, Warsh's background as an inflation hawk suggests he may be in a tough spot to argue for lower rates, given that price growth has been above 2% for the past five years.

"He's a stone-cold hard money guy, who would like the Fed to do much less with its balance sheet; to significantly reduce its bond-buying, at least in normal times; and to upweight the inflation mandate relative to the employment mandate," writes Jared Bernstein, former chair of the Council of Economic Advisers under President Joe Biden.

Warsh has argued recently that artificial intelligence and deregulation could push inflation down over time, which may make his stance less clearly hawkish once on the committee, Sonola says. But again, revamping how the institution thinks about inflation may be difficult — especially since the FOMC unanimously approved its "Statement on Longer-Run Goals and Monetary Policy Strategy" this past week.

Warsh may find his fellow committee members more receptive to his consistent advocacy for a smaller Fed balance sheet, writes Michael Feroli, chief U.S. economist at J.P. Morgan. "Some committee members have already been speaking that way; so, he wouldn't be a lone voice," Feroli says. "It might require complementary changes in implementation and regulatory policies, but those are likely doable."

Feroli is skeptical, however, that a smaller balance sheet implies lower interest rates — an argument that Warsh has put forward previously. Rather, Feroli expects that a smaller Fed balance sheet could exert moderate upward pressure on longer-term interest rates. "This would be at odds with the administration's apparent desire to lower mortgage rates," he writes.

Warsh's fans think he can thread the needle on both policy and politics. "Kevin Warsh is well above the bar on both substance and independence to be chair of the Federal Reserve," writes Jason Furman, former chair of the Council of Economic Advisers under President Barack Obama.

"Markets remember him as a crisis-era governor with strong views on the institution's direction, and his return will help define the next phase of U.S. rate policy, balance sheet strategy, and central bank communication," writes Christian Hoffmann, head of fixed income at Thornburg Investment Management.

Write to Megan Leonhardt at megan.leonhardt@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

FORM 8.5 (EPT/NON-RI)

PUBLIC OPENING POSITION DISCLOSURE/DEALING DISCLOSURE BY AN

EXEMPT PRINCIPAL TRADER WITHOUT RECOGNISED INTERMEDIARY ("RI") STATUS (OR WHERE RI STATUS IS NOT APPLICABLE)

Rule 8.5 of the Takeover Code (the "Code")

1.         KEY INFORMATION

2.         POSITIONS OF THE EXEMPT PRINCIPAL TRADER

If there are positions or rights to subscribe to disclose in more than one class of relevant securities of the offeror or offeree named in 1(b), copy table 2(a) or (b) (as appropriate) for each additional class of relevant security.

(a)        Interests and short positions in the relevant securities of the offeror or offeree to which the disclosure relates following the dealing (if any)

All interests and all short positions should be disclosed.

Details of any open stock-settled derivative positions (including traded options), or agreements to purchase or sell relevant securities, should be given on a Supplemental Form 8 (Open Positions).

(b)        Rights to subscribe for new securities (including directors' and other employee options)

• Class of relevant security in relation to which subscription right exists:

• Details, including nature of the rights concerned and relevant percentages:

3.         DEALINGS (IF ANY) BY THE EXEMPT PRINCIPAL TRADER

Where there have been dealings in more than one class of relevant securities of the offeror or offeree named in 1(b), copy table 3(a), (b), (c) or (d) (as appropriate) for each additional class of relevant security dealt in.

The currency of all prices and other monetary amounts should be stated.

(a)        Purchases and sales

(b)        Cash-settled derivative transactions    

(c)        Stock-settled derivative transactions (including options)

(i)         Writing, selling, purchasing or varying

• Class of relevant security

• Product description e.g. call option

• Writing, purchasing, selling, varying etc.

• Number of securities to which option relates

• Exercise price per unit(USD)

• Type

  e.g. American, European etc.

• Expiry date

• Option money paid/ received per unit

(ii)                   

• Class of relevant security

• Product description

  e.g. call option

• Exercising/ exercised against

• Number of securities

• Exercise price per unit

(d)        Other dealings (including subscribing for new securities)

• Class of relevant security

• Nature of dealing

  e.g. subscription, conversion

• Details

• Price per unit (if applicable)

4.         OTHER INFORMATION

(a)        Indemnity and other dealing arrangements

• Details of any indemnity or option arrangement, or any agreement or understanding, formal or informal, relating to relevant securities which may be an inducement to deal or refrain from dealing entered into by the exempt principal trader making the disclosure and any party to the offer or any person acting in concert with a party to the offer:

  Irrevocable commitments and letters of intent should not be included.  If there are no such agreements, arrangements or understandings, state "none"

• None

(b)        Agreements, arrangements or understandings relating to options or derivatives

• Details of any agreement, arrangement or understanding, formal or informal, between the exempt principal trader making the disclosure and any other person relating to:

  (i)  the voting rights of any relevant securities under any option; or

  (ii) the voting rights or future acquisition or disposal of any relevant securities to which any derivative is referenced:

  If there are no such agreements, arrangements or understandings, state "none"

• None

(c)        Attachments

• Is a Supplemental Form 8 (Open Positions) attached?

• Yes

SUPPLEMENTAL FORM 8 (OPEN POSITIONS)

DETAILS OF OPEN STOCK-SETTLED DERIVATIVE (INCLUDING OPTION) POSITIONS, AGREEMENTS TO PURCHASE OR SELL ETC.

Note 5(i) on Rule 8 of the Takeover Code (the "Code")

1.         KEY INFORMATION

2.         STOCK-SETTLED DERIVATIVES (INCLUDING OPTIONS)

3.         AGREEMENTS TO PURCHASE OR SELL ETC.

Full details should be given so that the nature of the interest or position can be fully understood:

It is not necessary to provide details on a Supplemental Form (Open Positions) with regard to cash-settled derivatives.

The currency of all prices and other monetary amounts should be stated.

The Panel's Market Surveillance Unit is available for consultation in relation to the Code's disclosure requirements on +44 (0)20 7638 0129.

The Code can be viewed on the Panel's website at www.thetakeoverpanel.org.uk.

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FORM 8.5 (EPT/NON-RI)

PUBLIC OPENING POSITION DISCLOSURE/DEALING DISCLOSURE BY AN

EXEMPT PRINCIPAL TRADER WITHOUT RECOGNISED INTERMEDIARY ("RI") STATUS (OR WHERE RI STATUS IS NOT APPLICABLE)

Rule 8.5 of the Takeover Code (the "Code")

1.         KEY INFORMATION

2.         POSITIONS OF THE EXEMPT PRINCIPAL TRADER

If there are positions or rights to subscribe to disclose in more than one class of relevant securities of the offeror or offeree named in 1(b), copy table 2(a) or (b) (as appropriate) for each additional class of relevant security.

(a)        Interests and short positions in the relevant securities of the offeror or offeree to which the disclosure relates following the dealing (if any)

All interests and all short positions should be disclosed.

Details of any open stock-settled derivative positions (including traded options), or agreements to purchase or sell relevant securities, should be given on a Supplemental Form 8 (Open Positions).

(b)        Rights to subscribe for new securities (including directors' and other employee options)

• Class of relevant security in relation to which subscription right exists:

• Details, including nature of the rights concerned and relevant percentages:

3.         DEALINGS (IF ANY) BY THE EXEMPT PRINCIPAL TRADER

Where there have been dealings in more than one class of relevant securities of the offeror or offeree named in 1(b), copy table 3(a), (b), (c) or (d) (as appropriate) for each additional class of relevant security dealt in.

The currency of all prices and other monetary amounts should be stated.

(a)        Purchases and sales

(b)        Cash-settled derivative transactions

• Class of relevant security

• Product description

  e.g. CFD

• Nature of dealing

  e.g. opening/closing a long/short position, increasing/reducing a long/short position

• Number of reference securities

• Price per unit

(c)        Stock-settled derivative transactions (including options)

(i)         Writing, selling, purchasing or varying

• Class of relevant security

• Product description e.g. call option

• Writing, purchasing, selling, varying etc.

• Number of securities to which option relates

• Exercise price per unit

• Type

  e.g. American, European etc.

• Expiry date

• Option money paid/ received per unit

(ii)        Exercise

• Class of relevant security

• Product description

  e.g. call option

• Exercising/ exercised against

• Number of securities

• Exercise price per unit

(d)        Other dealings (including subscribing for new securities)

• Class of relevant security

• Nature of dealing

  e.g. subscription, conversion

• Details

• Price per unit (if applicable)

4.         OTHER INFORMATION

(a)        Indemnity and other dealing arrangements

• Details of any indemnity or option arrangement, or any agreement or understanding, formal or informal, relating to relevant securities which may be an inducement to deal or refrain from dealing entered into by the exempt principal trader making the disclosure and any party to the offer or any person acting in concert with a party to the offer:

  Irrevocable commitments and letters of intent should not be included.  If there are no such agreements, arrangements or understandings, state "none"

• None

(b)        Agreements, arrangements or understandings relating to options or derivatives

• Details of any agreement, arrangement or understanding, formal or informal, between the exempt principal trader making the disclosure and any other person relating to:

  (i)  the voting rights of any relevant securities under any option; or

  (ii) the voting rights or future acquisition or disposal of any relevant securities to which any derivative is referenced:

  If there are no such agreements, arrangements or understandings, state "none"

• None

(c)        Attachments

• Is a Supplemental Form 8 (Open Positions) attached?

• NO

Public disclosures under Rule 8 of the Code must be made to a Regulatory Information Service.

The Panel's Market Surveillance Unit is available for consultation in relation to the Code's disclosure requirements on +44 (0)20 7638 0129.

The Code can be viewed on the Panel's website at www.thetakeoverpanel.org.uk.

RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our Privacy Policy.  END  FEOUROARNAUAOAR

RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our Privacy Policy.  END  CBOWPURGGUPQUGU