This Could Be A Problem For Markets

Moments ago, Bloomberg reported that Stanford University economist John Taylor, a candidate for Federal Reserve chairman, made a favorable impression on President Donald Trump after an hour-long interview at the White House last week, several people familiar with the matter said.

Meanwhile, former Fed board governor Kevin Warsh, and until recently a frontrunner to replace Yellen, is "said to have seen his star fade within the White House."

As a result, Taylor's online odds soared from 4th to 3rd, and moments ago, to 2nd in the (highly unscientific) PredictIt rankings of odds for next Fed chair.

That said, should John Taylor become Fed chair, it could be a problem for risk assets because according to the Taylor Rule, the estimated Fed Funds rate should be not at 1.25% where it currently is but... 5.7%!

Ironically, while Treasurys sharply reversed, losing all intraday gains and sliding to session lows while the dollar jumped on the Taylor news, equities - as usual - ignored everything and continued to press higher.

Of course, if and when Trump realizes that John Taylor's prescription for monetary policy would be to hike rates materially, we doubt he will remain in 2nd place for long, which is why what Politico also just reported, namely that:

  • TRUMP IS SAID TO PLAN INTERVIEW WITH YELLEN THIS WEEK: POLITCO

... may end up being the most important headline of the day, as Trump decides to simply keep Yellen for another term and enjoy even higher all time S&P highs, providing plenty of Twitter boast fodder for the next 3 years.