Fearless of the unexpected PPI, the new candidate for Fed Chairman: supports significant interest rate cuts.

Author: He Hao, Wall Street Insights

On Thursday, economist Marc Sumerlin confirmed that he is one of the candidates for the position of Federal Reserve Chairman. He expressed interest in the role and believes that aggressive rate cuts are appropriate. Wall Street veteran and Jefferies Chief Market Strategist David Zervos is also one of the candidates for the Federal Reserve Chairman position, and on the same day stated his support for significant rate cuts.

This Wednesday, Trump indicated that he might appoint the next Federal Reserve chairman slightly earlier, narrowing the candidates down to three or four. U.S. Treasury Secretary Basent also stated on the same day that they plan to consider up to 11 candidates. Zervos and BlackRock's bond strategist Rick Rieder are among the candidates with a stronger market background than an economics background.

In the competition to succeed the current Federal Reserve Chairman Jerome Powell, Sumerlin and Zervos's stance on interest rates is directionally aligned with President Trump. Trump has repeatedly urged the Federal Reserve to ease its rate policy, advocating for a reduction of rates by as much as 3 percentage points, but the Federal Open Market Committee led by Powell has kept the benchmark rate unchanged since cutting it in December 2024.

Sumerlin: Lowering interest rates is an easy decision

Sumerlin served as the Deputy Director of the National Economic Council during the George W. Bush administration and was an economic advisor during the 2000 presidential campaign. He was involved in the drafting of the landmark "Economic Growth and Tax Relief Reconciliation Act" and the regulations related to the "Sarbanes-Oxley Act," but he has no experience related to the Federal Reserve. In recent years, Sumerlin has been running his own economic consulting firm and has maintained business relations with Basent.

Sumerlin recently stated on CNBC that lowering the Federal Reserve's key interest rate now is an easy decision. The current yield structure combined with a weak labor market and stable inflation suggests that it would be quite easy to cut rates by 50 basis points without causing any disruption. Therefore, in his view, this is almost an obvious choice.

Regarding the nomination process, Sumerlin confirmed that he was contacted by the White House last week. He stated that he is close friends with Secretary of the Treasury Basant, who has played a leading role in the search for the next chairman, and the two have likely been discussing monetary policy weekly for the past 12 years.

I received a call last Wednesday saying there would be a list, and I would be on the list. That's all I know at the moment. I'm waiting for further instructions to see what happens next.

Sumerlin stated that he would be interested in accepting the nomination as long as certain conditions are met:

I think if it's the Federal Reserve Chairman, it's a key mission concerning the world. You must be willing to do it. I have never seen the president. It will depend on whether we can have a consensus.

Sumerlin emphasized the importance of the Federal Reserve's independence, a point that has been questioned as Trump took the unprecedented step of publicly and bluntly criticizing Powell and other decision-makers. Trump referred to Powell as a "loser" and "stupid," and criticized the Federal Open Market Committee (FOMC) for being too complacent.

In response, Sumerlin stated:

You must be mentally prepared to know that you have to do your best to work for the American people every day when you walk into the office, while also facing criticism and being ready to respond. Ideally, you would hope to know that you are in sync with each other before entering this position. Synchronization is two-way, and this will also be part of the exploratory process.

Zervos: Fearless of PPI Data, Decisively Cuts Interest Rates

David Zervos said in an interview with CNBC that Federal Reserve officials do not need to be fearful of the higher-than-expected inflation upstream pressure indicated by the Producer Price Index (PPI) for July.

On the contrary, he argues that the Federal Reserve should decisively loosen monetary policy now to prevent a slowdown in the labor market and actually create an additional one million jobs. In the last three Federal Reserve meetings, Zervos has advocated for a 50 basis point reduction in the federal funds rate, and he reiterated this position in this interview:

I still absolutely adhere to this view. I believe there is a reasonable and very convincing logic indicating that monetary policy is tight. Overall, I see no reason why this PPI data would change that view.

Zervos said, "I believe that it would be very beneficial to have more people who are familiar with the market and have market capabilities involved in monetary policy decision-making."

Regarding the overall interest rate cut, Zervos said: "I'm not sure I can support a cut of 300 basis points, but I can definitely accept 200 basis points. If we really emphasize the AI story, the tech story, and the deflationary pressures we are accumulating from the supply side, I could also be persuaded to support lower levels."

Regarding Trump's criticism of the Federal Reserve, Zervos stated that he does not feel intimidated. He said, "To do this job, you must fully understand that you will be involved in a political process. The goal is to base the debate on facts and to make the most beneficial decisions guided by the objectives set by Congress."