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Oct 17, 2017 03:55 PM

Fed: Market is fickle about the next Fed chair - BBH

Analysts at BBH suggest that the market is fickle as it has jumped from one candidate to another as the most likely Fed Chair.  

Key Quotes

“Until his belated and mild criticism of the President dealing with race issues, economic adviser Cohn was regarded as the most likely successor to Yellen at the head of the Fed.  When Cohn fell out of favor, it was seen as a contest between Yellen and former Fed Governor Warsh.”  

“Powell's stock rose recently, and there have been reports that Treasury Secretary Mnuchin favors him.  Yellen has slipped in the betting markets, as president-as-disrupter has little time for tradition or the fact that Yellen has steered the Fed quite remarkably through tapering, rate hike and now balance sheet reduction with very little drama.”  

“Yesterday, reports suggesting that Trump was enthusiastic after meeting with Taylor saw his stock rise in the betting websites and may have prompted a reversal in the yields.  The US 10-year yield closed higher, and the December futures contract surrendered the gains scored in the wake of the disappointing CPI report before the weekend.  The 2-10 curve did not change; yields rose nearly uniformly by three basis points.”    

“We caution against reading too much into the process whereby the Trump meets the different candidates for the post that his staff have identified.  Also, although the Taylor rule would suggest higher rates may be appropriate, Taylor himself is opposed to blindly following any model.  The US-German 2-year spread is 227 bp today, the cycle high.”  

“PredictIt has Powell as the most likely nominee, with a little more than a one-in-three chance.  A week ago, his chances were even-money.  The new new thing is that Taylor's odds have improved to one-in-five from one-in-ten.  It is pretty much a dead heat between Taylor and Warsh, with Yellen in fourth place.”