FOMC members may not embrace Trump’s pick for Fed chair – Federated Hermes deputy CIO of fixed income R.J. Gallo

R.J. Gallo, deputy CIO of fixed income at Federated Hermes, addresses the recent DOJ move to investigate Federal Reserve chairman Jerome Powell and the possible impact on monetary policy, on the latest episode of ‘Credit Exchange with Lisa Lee’.

Gallo, who will take up the fixed income CIO role in May, says we might see a more divergent FOMC where the votes actually matter.

“Does that make them more hawkish? I don’t know. I’ll tell you this. It certainly won’t make the hawks more dovish,” he says.

“It’s important to realise that many presidents get frustrated with the Federal Reserve,” adds Gallo, who prior to joining Federated Hermes in 2000, was at the Federal Reserve Bank of New York. But what has been extraordinary in the Trump administration has been the full-on verbal assault of the Federal Reserve and the resultant “feud between the White House and the Fed.” And the most recent development of the DOJ subpoena has to be viewed in that context.

On fixed income, Gallo takes a bit more of a cautious view. While his base case is for the US economy to grow in 2026, he is keeping some powder dry to reassess, in case there’s spread widening. “We don’t just want to chase an already highly-valued market.”

Another thing to watch is AI, which has accounted for a large portion of equity returns and stimulated the US economy through high capex spending. If we see poor returns to AI capex, that could challenge equity and credit valuations, Gallo says.