Trump Prepares Federal Reserve Chair Decision Amid Pressure For Lower Rates

BlackRock's chief bond investment manager, Rick Rieder, has not been interviewed yet by U.S. President Donald Trump for the Federal Reserve top job, Treasury Secretary Scott Bessent said on Thursday, adding that he expects the nominee to be announced later this month.

Rieder is among four finalists under consideration for the job to succeed Fed Chair Jerome Powell, whose term as head of the U.S. central bank expires in May. The other finalists include White House economic adviser Kevin Hassett, Fed Governor Christopher Waller and former Fed Governor Kevin Warsh. The other three have been interviewed by Trump.

Bessent, speaking to the Economic Club of Minnesota, noted that Rieder was the only candidate with no previous Fed experience. Asked if that was an advantage, he said, "Well, the president will decide."

The Treasury chief said he expected Trump to make a decision soon, perhaps right before the president heads to the World Economic Forum, which is taking place in Davos, Switzerland from January 19-23, or right afterwards.

Bessent, Commerce Secretary Howard Lutnick and Energy Secretary Chris Wright are among the top administration officials due to join Trump at the annual gathering that attracts leading policymakers.

Trump told the New York Times in an interview published on Thursday that he had made up his mind on who he would nominate to lead the Federal Reserve, but stopped short of disclosing his pick.

"I have in my mind a decision," he said during the interview on Wednesday night. "I haven't talked about it with anybody."

Asked about Hassett, his top economic adviser, Trump said, "I don't want to say," but described him as "certainly one of the people that I like."

Source: Kitco

British lawmakers are calling for the Bank of England to be granted new authority to gather data on the private credit market, warning that a lack of transparency could be hiding major risks to the UK's financial stability.

The recommendation comes from a cross-party House of Lords committee in a new report titled "Private markets: Unknown Unknowns." The report concludes there is currently not enough data to properly assess whether the rapid expansion of private markets poses a systemic threat.

A Stress Test with Limitations

The Bank of England has already initiated a landmark stress test to gauge how the $16 trillion global private equity and private credit industries would perform during a major financial shock. However, the results are not expected until early 2027, and the parliamentary committee is pushing for preliminary findings to be released sooner.

A key challenge is that private credit is not directly regulated by the BoE. The central bank cannot compel all firms to participate in the stress test, particularly those based overseas, which limits the scope of its investigation.

A Call for Information, Not Regulation

In light of the stress test's potential gaps, the committee is urging the government to ensure the central bank has the power to collect information on the scale and interconnectedness of private credit with the traditional banking system if the current exercise proves insufficient.

"It's an information gathering power, it's not the same as regulating the industry," clarified Sheila Noakes, a member of the House of Lords.

Finance Ministry Under Pressure

Committee member Clive Hollick stated that private markets should be "top-of-the-agenda" for the finance ministry, suggesting the department does not currently have a "firm grasp" on the issue.

"Given that there have already been some slip-ups in the United States, this deserves a much closer, more active engagement," Hollick said. His comment echoes warnings from the BoE, which has pointed to the collapse of U.S. companies like auto parts maker First Brands and dealership Tricolor as potential signals of broader financial problems ahead.

A spokesperson for the finance ministry stated that it has "significantly increase[d]" its focus on non-bank financial institutions in recent years and will formally respond to the committee's report.

Proactive Scrutiny Amid Uncertainty

The committee’s inquiry, which began in July, involved hearing evidence from the finance ministry, regulators, banks, and asset managers.

Despite the concerns raised, Hollick noted that the investigation has not uncovered any direct evidence that the private credit market is currently causing harm.

"We neither smelt a rat, nor saw a rat," he told Reuters, framing the report as a precautionary measure to understand potential future risks rather than a reaction to an existing crisis.

A UK parliamentary committee has issued a stark warning that the Treasury has a "limited grasp" on the risks posed by the booming shadow banking sector, raising concerns about the country's preparedness for a potential financial shock.

The report from the House of Lords financial services regulation committee highlights that the Treasury may not be sufficiently aware of the dangers stemming from the $16 trillion (£12 trillion) non-bank financial industry, which operates largely outside of traditional regulatory frameworks.

The $16 Trillion Sector Flying Under the Radar

The shadow banking industry, which includes private equity firms and private credit funds, has quadrupled in value from $4 trillion in 2008. These firms compete directly with regulated banks by acquiring businesses and issuing loans.

While the sector is dominated by US firms, it is deeply interconnected with the mainstream financial system. Regulated banks and insurers in the UK and globally invest in and lend money to these non-bank entities, creating a complex web of exposure.

The International Monetary Fund warned last year that a downturn in the private credit market could trigger ripple effects across the entire financial system, potentially destabilizing the traditional banks that provide it with funding.

Lords Committee Flags Treasury 'Passivity'

The committee's report expressed serious concern over the Treasury's approach, stating that its evidence "demonstrated a limited grasp of the concerns raised during this inquiry." The peers suggested this indicated "passivity in the face of potential risks to the UK's financial stability."

This finding is particularly troubling given the Treasury's core responsibility for maintaining overall financial stability and ensuring that taxpayers are not left to backstop the financial system in a crisis.

Due to a lack of comprehensive data, it remains difficult to definitively assess whether a crisis in the non-bank sector could bring down the wider financial system. However, the committee concluded that officials do not appear to be fully alert to the potential risks.

Why the UK Is on the Front Line

The report argues that the UK's position as a global financial center means it will be among the first to experience both the opportunities and the risks from the growth of private markets, especially those based in the US.

Bank of England Voices Concern, Plans Stress Test

The Bank of England's Governor, Andrew Bailey, has also signaled his own concerns. Speaking to the Lords inquiry in October, he pointed to the collapse of two US auto firms that had borrowed from private markets. Bailey noted that these cases raised questions about weak lending standards and contained "worrying echoes" of the sub-prime mortgage crisis that triggered the 2008 financial crisis.

In response to the growing risks, the Bank of England is preparing to launch a stress test of the private credit industry. This test aims to map out potential dangers linked to the sector's expansion and assess whether it could amplify future financial and economic shocks.

Michael Forsyth, the committee's chair, endorsed the vigilance of UK regulators. "The Bank of England, the Financial Conduct Authority and the Prudential Regulation Authority are right to be vigilant and to monitor the dramatic growth of private markets and the implications for financial stability," he said.

A spokesperson for the Treasury stated, "We have worked together with the regulators to significantly increase our focus on non-banks sectors in recent years and have a robust, flexible framework to protect financial stability." They added that a formal response to the report would be provided in due course.

A recent drop in oil tanker rates has provided a welcome boost to the U.S. crude market this month, signaling a pickup in demand. However, this relief is likely to be short-lived, as most forecasts point to significantly higher shipping costs for the remainder of the year compared to 2025.

A Short-Term Reprieve for US Crude

Shipping markets are currently loosening, causing freight rates on key routes from the U.S. and the U.K. to Asia to fall. An analyst from TP ICAP told Bloomberg this week that the trend is directly stoking demand for U.S. crude oil.

This development has helped local U.S. benchmark prices rebound. Still, high-sulfur crude grades remain under pressure following President Trump’s statement that the U.S. intends to take in millions of barrels of Venezuelan crude.

The Broader Trend: Why Freight Rates Remain High

Despite the recent dip, the overall situation for oil shipping remains inflated. The core reason is rising crude supply from both OPEC+ and the United States, which has tightened the availability of tankers. Last year, this scarcity led to an unusual situation where half a dozen new Very Large Crude Carriers (VLCCs) made their maiden voyages empty. Instead of carrying gasoline as is standard, they sailed without cargo to pick up crude and capitalize on soaring daily rates.

This unusual market strength culminated in a 467% year-to-date surge in oil tanker rates on major shipping routes, according to Bloomberg estimates from December that drew on data from the Baltic Exchange and Spark Commodities.

Even a sudden late-December drop failed to reset the market. Lloyd's List reported that VLCC rates plunged 20% between December 19 and December 22. However, at $83,882 per day, they remained at their highest level since the floating storage boom in the spring of 2020. Freight rates for smaller tankers also continue to hold strong.

Sanctions and Geopolitics Tighten the Screws

Geopolitical factors are adding significant upward pressure on shipping costs. The surge in tanker rates was partly driven by U.S. sanctions against Russian entities Rosneft and Lukoil, which took effect in late November. The market anticipated a squeeze on the fleet Russia uses for its oil transport.

Tensions escalated this week when the United States pursued and captured the Russian-flagged tanker, Bella 1, in the North Atlantic. The seizure of the U.S.-sanctioned vessel signals an intensification of geopolitical conflict, which, combined with limited tanker availability, is likely to keep freight rates elevated.

Fleet Constraints Signal a Prolonged Rate Squeeze

Structural issues within the global tanker fleet are also pointing toward persistently high rates. A Jefferies analyst noted in December that supertanker fleet utilization is expected to reach 92% in 2026, a seven-year high, up from 89.5% last year. This rate reflects the percentage of all available tankers that are currently hired out.

Several other factors are compounding the supply crunch:

• Sanctions: As the United States imposes sanctions on more tankers, the pool of vessels available for global crude transport shrinks, a trend noted by Reuters in mid-December.

• High Demand: Last month, sanctions combined with strong demand from OPEC+ pushed daily freight rates as high as $130,000. While they have since eased, rates remain well above where they were a year ago.

• Fleet Aging: The availability of tankers is also limited by an aging fleet. Oil companies are increasingly dropping vessels that are over 15 years old to comply with stricter safety requirements. According to tanker operator Frontline, nearly 44% of the global fleet is 15 years or older, and 18% of those older ships are already under sanctions.

With so many factors constraining the supply of available tankers, freight rates are likely to remain far above year-ago levels. The only scenario that could significantly lower costs would be a sharp decline in oil demand, an event most likely triggered by a major price jump.

Japanese household spending delivered a significant surprise in November, rebounding sharply from a drop in the previous month and defying market predictions.

Government data revealed that consumer spending grew 2.9% compared to the same month a year earlier. This result far outpaced the median forecast, which had anticipated a 0.9% decline. The month-on-month figures were even stronger. On a seasonally adjusted basis, spending jumped 6.2%, more than double the estimated 2.7% rise.

Bank of Japan Navigates Economic Crosscurrents

This unexpected strength in consumer activity comes at a pivotal time for monetary policy. Last month, the Bank of Japan (BOJ) increased its policy rate from 0.5% to 0.75%, marking a 30-year high. The central bank's decision was based on the expectation that Japanese companies would continue to implement steady wage hikes.

Governor Kazuo Ueda has also signaled that the BOJ is prepared to raise borrowing costs further if the economy and prices develop in line with its forecasts.

Real Wages Lag, Casting a Shadow on Recovery

However, a critical headwind persists. Despite the jump in spending, the underlying issue of inflation outpacing wage growth remains unresolved.

Separate data from the labor ministry showed that inflation-adjusted real wages fell by 2.8% in November from a year earlier. This ongoing decline in real income continues to squeeze the purchasing power of Japanese households, posing a challenge to a sustained economic recovery.

In an interview with The New York Times, US President Donald Trump said that the Federal Reserve has made its decision regarding the next chairman but has not yet revealed the candidate's name.

Trump stated, "I have a decision in mind, but I haven't spoken to anyone yet."

When President Trump was asked whether his chief economic adviser, Kevin Hassett, was being considered for the Fed chairmanship, he responded, "I don't want to say." However, his statement that Hassett was "definitely one of my favorites" was noteworthy.

Regardless of Trump's final choice, the new Fed chairman will take office at a critical time. The Fed is at the center of Trump's unprecedented pressure to sharply cut interest rates, reigniting debates about the independence of monetary policy.

On the other hand, according to Kalshi data from the prediction market, Kevin Warsh emerges as the strongest candidate for the Fed chairmanship. Warsh's probability of appointment is priced at 41%, while Kevin Hassett's is at 39%. Current Fed Board member Christopher Waller's probability is calculated at 12%.

Source: CryptoSlate