Trump Met With Janet Yellen; Meeting Lasted 30 Minutes

The anticipated meeting between president Trump and Janet Yellen has concluded, and according to Fox News, it lasted no more than 30 minutes, running from 2:00PM to 2:30PM, or barely enough for Trump to stop patting himself on the back about the yuuge Dow Jones rally under his presidency.

And to think it was a just over a year ago that Trump was bashing Yellen for creating a stock bubble with the help of low rates, shortly after urging his fans to sell their stocks.

As a reminder, last September, Trump said that "keeping the rates artificially low so the economy doesn't go down so that Obama can say that he did a good job. They're keeping the rates artificially low so that Obama can go out and play golf in January and say that he did a good job. It's a very false economy. We have a bad economy, everybody understands that but it's a false economy. The only reason the rates are low is so that he can leave office and he can say, 'See I told you.'

Which in light of recent Trump tweets is... ironic.

The White House's statement on the meeting was brief, and according to Fox Business reporter Brian Schwartz, "[Trump] expressed in past that he’s looking at renominating Yellen. Meeting was structured just the same as other candidates”

Still, judging by the online betting market, Yellen's odds have improved and the Fed Chair is back to second place, behind Powell, who has emerged as the online community's favorite candidate by a wide margin.

And while John Taylor's star appears to have set after bursting on the scene last week, following a report that Trump has taken a shine to the Stanford economist, here is ABN Amro's Nick Kounis on what would happen if the biggest possible hawk of the bunch were to be appointed as the next Fed chair:

Global Daily – What happens if Taylor rules the Fed?


Fed View: Taylor would be a hawkish surprise to markets – The White House has confirmed that five candidates are in the running to take over as Fed Chair in February 2018. The candidates on the short list are Kevin Warsh, Jerome Powell, Gary Cohn, current Chair Janet Yellen and John Taylor. The latter looks to have been a late addition in the race and seems to be a serious candidate. Probability based on bets on the Predictit website suggest John Taylor is now joint second favourite to succeed after front-runner Jerome Powell, who is currently a member of the Governing Board of the Fed. Briefings suggest President Trump will announce his choice for Fed Chair nominee before 3 November.


Whether the odds above are an accurate reflection of the chances of each candidate is debatable. Ultimately, it is difficult to predict the choice that President Trump will make. The choice of Mr. Powell and Ms. Yellen would signal continuity. Even the choice of either Mr. Warsh or Mr. Cohn would not necessarily indicate that there would be a significant change in the direction of monetary policy.


However, if John Taylor becomes the new Fed Chair, the chances increase that interest rates would rise more quickly than in the case that the other candidates were appointed. Mr. Taylor – currently a Professor of Economics at Stanford University – developed the famous ‘Taylor rule’ for setting interest rates. It links interest rates to the amount of slack in the economy, the deviation of inflation from the target and the neutral rate. Most estimates of the Taylor Rule imply significantly higher interest rates than where they are currently. For instance, Atlanta Fed researchers calculate a the fed funds rate according to the Taylor Rule in Q3 in a range of 1.8-2.3% depending on the measure of slack used (currently it stands at 1.16%). They used the Fed’s own assumption for the neutral rate in these calculations. Mr. Taylor said last year that the Fed should have raised interest rates faster and that he believes in rules-based monetary policy.


So it seems he would be an advocate of a higher trajectory for interest rates. Against that, a number of considerations could temper that view. Although the Fed Chair is crucial to the direction of monetary policy, interest rates are set by voting members of the whole FOMC. Second, when actually ‘in power’ Mr. Taylor could take a more flexible approach. Finally, inflationary pressures still look subdued. Nevertheless, on balance, we still think that if Mr. Taylor was nominated as Fed Chair, it would be a significant hawkish surprise to financial markets.