Unfazed by PPI surprise, Fed chair candidate backs significant rate cut

Author: He Hao, Wall Street Journal

On Thursday, economist Marc Sumerlin confirmed he is a candidate for Federal Reserve Chair, expressing interest and believing aggressive interest rate cuts are appropriate. David Zervos, a Wall Street veteran and chief market strategist at Jefferies, is also a candidate for Fed Chair and expressed support for a significant rate cut on the same day.

On Wednesday, Trump indicated he might appoint the next Fed Chair slightly earlier, narrowing the field to three or four. U.S. Treasury Secretary Bensont said the same day that he plans to consider up to 11 candidates. Zervos and BlackRock bond strategist Rick Rieder are among the candidates with stronger market backgrounds than economics.

In the race to succeed current Fed Chair Powell, Sumerlin and Zervos' interest rate stances align with President Trump's. Trump has repeatedly urged the Federal Reserve to ease interest rate policy, advocating for a rate cut of up to 3 percentage points, but the Federal Open Market Committee, led by Powell, has kept the benchmark rate unchanged since its December 2024 cut. Sumerlin: Lowering Rates Is an Easy Decision Sumerlin served as Deputy Director of the National Economic Council during the George W. Bush administration and as an economic advisor during his 2000 presidential campaign. He was involved in drafting legislation for Bush's landmark Economic Growth and Tax Reconciliation Act and the Sarbanes-Oxley Act, but he has no experience with the Federal Reserve. In recent years, Sumerlin has run his own economic consulting firm and has maintained business ties with Bessant. Sumerlin recently told CNBC that lowering the Fed's key interest rate now is an easy decision. The current yield structure, combined with a weak labor market and stable inflation, suggests a 50 basis point rate cut is easily possible without causing any disruption. Therefore, in his view, it's an almost obvious choice. Regarding the nomination process, Sumerlin confirmed receiving contact from the White House last week. He stated that he is a close friend of Treasury Secretary Benson, who played a leading role in the search for the next chairman, and that the two have been discussing monetary policy weekly for perhaps 12 years: I received a call last Wednesday saying there would be a list and I would be on it. That's all I know at this point. I'm awaiting further guidance on what will happen next. Sumerlin stated that he would be interested in accepting the nomination if certain conditions were met: I believe that if it's the chairmanship of the Federal Reserve, it's a mission of critical importance to the world. You have to be willing to do it. I've never met the president. It will depend on whether we see eye to eye. Sumerlin emphasized the importance of the Federal Reserve's independence, which has been called into question by Trump's historically unprecedented public and outspoken criticism of Powell and other policymakers. Trump has called Powell a "loser" and "stupid" and criticized the Federal Open Market Committee (FOMC) for being complacent. In response, Sumerlin said: "You have to be mentally prepared to go into the office every day and know that you have to do your best for the American people, but you will also face criticism and be prepared to deal with it. Ideally, you want to know before you enter the position that you are in sync. Synchronicity is a two-way process, and this will be part of the discussion." Zervos: Don't be afraid of PPI data, decisively cut rates. David Zervos told CNBC that Federal Reserve officials shouldn't be deterred by the higher-than-expected inflationary pressures revealed by the July Producer Price Index (PPI). Instead, he argued that the Fed should decisively ease monetary policy now to prevent a slowdown in the labor market and actually create an additional million jobs. Zervos has advocated for a 50 basis point cut in the federal funds rate at each of the past three Fed meetings, a position he reiterated in this interview: "I absolutely still hold that view. I think there's a reasonable and very compelling argument for a tighter monetary policy. Overall, I don't see any reason why this PPI data would change that view." Zervos said: "I think it would be very helpful if more people who are familiar with the market and have market capabilities were involved in monetary policy decisions." As for the overall rate cut, Zervos said: "I'm not sure I can support a 300 basis point cut, but I can certainly accept a 200 basis point cut. If you really emphasize the AI story, the technology story, and the deflationary pressure we are accumulating from the supply side, I can also be persuaded to support a lower level." Zervos said he was not intimidated by Trump's criticism of the Federal Reserve. He said: "You have to do this job with a full understanding that you will be participating in a political process. The goal is to make the debate based on facts and guided by the mission objectives set by Congress to make the most favorable decisions."