Trump Expected To Announce His Pick For Fed Chair In Next Two Weeks

In the latest update on Trump's search for the next Fed Chair, Reuters reported that the search has narrowed down to 5 finalists - Yellen, Warsh, Taylor, Powell and Cohn (condolences to Jeff Gundlach: his dark horse candidate, Neel Kashkari did not make the cut) - and that after meeting Yellen on Thursday, Trump will have discussed the Fed job with all five candidates. More importantly was the news that Trump is expected to announce his decision for next Fed Chair in the next 2 weeks, before he leaves for his Asian trip on November 3.

  • YELLEN, WARSH, TAYLOR, POWELL AND COHN ALL CANDIDATES FOR FED CHAIR -WHITE HOUSE OFFICIAL
  • FED CHAIR SEARCH NOW NARROWED TO FIVE FINAL CANDIDATES, WHITE HOUSE OFFICIAL SAYS
  • AFTER YELLEN MEETING, TRUMP WILL HAVE DISCUSSED FED JOB WITH ALL FIVE FED CANDIDATES -WHITE HOUSE OFFICIAL
  • TRUMP EXPECTED TO ANNOUNCE FED DECISION BEFORE HE LEAVES FOR ASIA TRIP NOV. 3 -WHITE HOUSE OFFICIAL

Yesterday, the USD and bond yields turmoiled briefly following news that Trump had warmed to the candidacy of San Fran professor John Taylor, father of the Taylor Rule and advocate of rules-based monetary policy, and who is widely perceived as a mega hawk. The news sent the USD surging and hit bonds.

That said, Taylor's hawkishness appears to have worked against him, and after surging to 2nd spot on Predictit yesterday, Taylor was tumbled to 4th spot this morning.

That said, Taylor's hawkish reputation may be unwarranted. As SocGen's Kit Juckes wrote this morning, what rate the Taylor Rule indicates is dependent on a variety of assumptions. To wit:

President Trump is reported to have taken away a favourable impression of John Taylor after he met the Stanford University economist and inventor of the ‘Taylor Rule'. As the President ponders who to appoint as the next Fed Chair, he now only has Janet Yellen to meet with, and Professor Taylor is the new market favourite. That, in turn, has given the dollar a bit of support and sent yields a bit higher as everyone contemplates what the Taylor Rule would imply for monetary policy. It's generally concluded that a rules-based approach would deliver higher rates faster than we would see under the current policy framework.

 

Anyone armed with a Bloomberg terminal can type in TAYL GO and see where a Taylor rule estimate of appropriate rates is, and if they want, they can play with the critical elements of the rue - the estate of ‘neutral' real rates, NAIRU, and the inflation target. On the basis of a 2% neutral real rate, and a 4% NAIRU, the Fed is a long way behind the curve, which may be reason enough to think that a Taylor Fed would be more hawkish. On the other hand, lower the NAIRU (which may be reasonable given what we've seen from the labour market data in recent years) and you can get that estimate down. A 3% NAIRU throws out a 1.5% Funds rate, for example. And if Professor Taylor really wants to fine-tune his rule, he can head down the road from Stanford to the San Francisco Fed, 36 miles away, and have a chat with Stanford alumni and head of the San Francisco Fed, John Williams. He developed an estimate of neutral rates with Thomas Laubach, which moves over time and is currently at -0.2%. See Professor's comments on a debate about that here . Plug Williams-Laubach's R* into Bloomberg's TAYL function with a 4% NAIRU and rates ‘should' be 0.5%. Now cut NAIRU to 3% and we're at -0.75%. By way of indication, I've plotted some variants of this below, though I haven't adjusted the Wiliams-Laubach R* all the way through the time series so they are only relevant in the recent past. The lesson is clear however - the rule's just a rule, it's how it's used that matters.

 

Choose your rule - but neither R* or NAIRU are necessarily constant through time

For now, however, Taylor's hawkish reputation precedes him, and - for a president who realizes he needs rates as low as possible for as long as possible - that will hardly boost Taylor's application. In fact, as we noted yesterday, the most likely outcome at this point is that Trump simply asks Yellen to continue for one more term.

Comments

Batman11 Tue, 10/17/2017 - 12:53 Permalink

Try and find someone who is up to date with the latest thinking.We trusted the independent central banks to provide financial stability and they presided over an era of unprecedented financial crises.This has helped people outside the mainstream work out what was going wrong:https://cdn.opendemocracy.net/neweconomics/wp-content/uploads/sites/5/2017/04/Screen-Shot-2017-04-21-at-13.52.41.pngThat is how easy it can be to see these big crises coming like 1929 and 2008.The Central Bankers must learn from their own mistakes from the people who have worked out what they were.It’s too late for Canada, Australia, Sweden and Norway who have let ridiculous housing booms inflate, but let’s make sure these are the last casualties of Central Bankers old thinking.Meet the new experts.Steve Keen - Minsky moments and affects of debt on the economyRichard Werner - Money and debt, bank credit and how it must be allocated for economic success, studying Japan around 1989Richard Koo - After the Minsky Moment, studied 1929, Japan 1989 and 2008. Financial stability in 15 mins from Richard Werner:https://www.youtube.com/watch?v=EC0G7pY4wRE&t=3sHe got to work after Japan blew up in 1989 and has had a lot of material to work with since courtesy of today’s Central Bankers and their flawed thinking.

Pliskin Tue, 10/17/2017 - 12:50 Permalink

Did the glowing orb in the desert, that he praised, tell him it should be a Jew?Where's TheLastTrump on this?To busy sucking trump's cock?Hello?   Hello?  Knobhead, where are you, you fucking dick wrangler!Oh My! There's lots of softy snowflakes of the conservative style on here, can't decide whether you want to suck on Obama's or Trump's cock?Pathetic little, snowflakes.... 

Robert Trip Tue, 10/17/2017 - 13:46 Permalink

These are exciting financial times.My personal pick for the Chair of the Federal Reserve is Sid Shylock.A guy that will suck every penny out of you and then toss you to the wolves.He's a winner.

ozzz169 Tue, 10/17/2017 - 17:28 Permalink

The tribe might stick a nice shabbat goy in their, they know people are getting too Jew wise, they might go into the shadows a bit, though it seems they are getting ultra arrogant and don't give a fuck if people know anymore, so maybe another Jew in there...

ozzz169 Tue, 10/17/2017 - 17:28 Permalink

The tribe might stick a nice shabbat goy in their, they know people are getting too Jew wise, they might go into the shadows a bit, though it seems they are getting ultra arrogant and don't give a fuck if people know anymore, so maybe another Jew in there...

JibjeResearch Tue, 10/17/2017 - 17:40 Permalink

Most people on ZH are top 10% in income/wealth.  So more printing is good for these people.... More printing... please....  it's good for the top 10%.  That's all it matter anyway....