A 'shadow' Fed chair could be coming. Who it could be and how markets might react.

Under normal circumstances, moderating inflation and a weakening labor market would make an easy case for interest rate cuts

Under normal circumstances, moderating inflation and a weakening labor market would make an easy case for interest rate cuts.

But these aren’t normal times, and a scattering of headwinds on the horizon have made Federal Reserve officials leery of easing monetary policy for fear that the inflation fight isn’t over.

That sentiment is setting up an intensifying conflict between the White House and the central bank that could result in President Donald Trump taking the unusual step of naming a “shadow” chair whose responsibility it would be to watch over the Fed and Chair Jerome Powell until a permanent chief can be installed next year.

There is “fresh buzz” around the idea that Trump could announce his choice to succeed Powell soon, “as a shadow Fed chair in the interim,” until the central bank chief’s term ends, Krishna Guha, head of global policy and central bank strategy at Evercore, said in a note Wednesday.

“The idea would be to accelerate the timeframe over which the administration can put its stamp on the Fed and influence rates markets while avoiding the nuclear option of trying to fire Powell,” Guha wrote.