Fed should focus on its core mission

[Ben Graham]

As the dollar gains strength against a range of risk assets, President Donald Trump's economic adviser Kevin Hassett said the Federal Reserve should concentrate on keeping its balance sheet as compact as possible.

Hassett argued that the Fed must prioritize its core tasks — preserving financial stability, lowering interest rates when appropriate, and reducing unemployment and inflation — and he said the central bank should do so the old?fashioned way, quietly. He said a measured, predictable policy rooted in fundamentals would avoid excessive politicization of Fed decisions and shield the institution from pressure by the administration or sectoral interests.

Hassett stressed that any Fed action should be justified by economic data and forecasts rather than political considerations. He said transparency and consistency in decision?making would strengthen confidence in the central bank and enhance the effectiveness of policy.

Hassett himself was once among contenders for the Fed chair, but on Friday, Mr. Trump said he would nominate Kevin Warsh as the next Fed chair. "He's a very independent, data-driven person," Hassett said about Warsh in an interview.

Hassett said the administration views a stable, predictable economic environment as essential to sustaining growth. He argued that cutting rates and keeping inflation under control are not merely targets but prerequisites for affordable housing and higher living standards for Americans.

Hassett also linked the possibility of a positive supply shock in the US economy to Mr. Trump's policies aimed at boosting manufacturing and cutting taxes. He said those measures could free up resources and raise economic efficiency.

A technical outlook for EUR/USD suggests that buyers should consider reclaiming 1.1890. That would open the way to test 1.1950. From there, a move to 1.1980 is possible, although advancing beyond that without support from major players would be difficult. The extended target is 1.2030. On a decline, meaningful buying interest is likely only around 1.1840. If buyers do not appear there, it would be prudent to wait for a new low at 1.1780 or to open long positions from 1.1730.

As for GBP/USD, buyers of the pound sterling should capture the nearest resistance at 1.3702. Only that will allow them to target 1.3738, above which a breakout would be challenging. The extended target is around 1.3784. If the pair falls, bears will try to seize control at 1.3650. If they succeed, a break of that range would deal a serious blow to bullish positions and could push GBP/USD down to 1.3618 with scope to extend to 1.3590.

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