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Could Yellen stay?

| Posted by: Paul Donovan | Tags: Paul Donovan

  • Today marks another step in the process of simultaneous if not synchronized developed economy policy tightening. The Bank of England is likely to reverse last year's emergency rate cut, on the relatively reasonable grounds that there does not appear to be an economic emergency.
  • Media leaks suggest that US President Trump will nominate Powell as Fed chair, to replace Yellen next year. Markets are likely to see this as continuity of policy – someone with Fed experience, but without an unhelpfully rigid approach.
  • There is an interesting question as to whether Yellen leaves the Fed. Yellen's term as governor has another ten years to run – departure would allow Trump to nominate four more people to the FOMC. While Yellen's resignation as governor is probable, it is not inevitable. If there are fears for the US central bank's political independence, staying would be a sensible course of action.
  • US unit labor cost data and productivity numbers are due. Productivity is of some note (even though it is essentially an economic residual), because productivity needs to go up if President Trump's 4% trend growth target is to be met. Euro final manufacturing PMI sentiment is also due, but not worth looking at.