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Choosing the Chair

| Posted by: Paul Donovan | Tags: Paul Donovan

  • US President Trump gave some thoughts on who may chair the Federal Reserve. Current Chair Yellen and Trump's economic adviser Cohn were both mentioned. Ivanka Trump was not mentioned, but there are "two or three other candidates". No decision will be made until the end of the year, adding unusual uncertainty to the process.
  • Trump praised Yellen because he believes the Fed Chair likes low interest rates (markets used to believe Trump a rate hawk). The president cannot fire the chair once the chair is in office. Pre-committing to a quantitative policy tightening path would give the Fed some insurance against an inappropriate choice of chair.
  • Today's Fed meeting is unlikely to change policy. One reason for delaying changes is the Fed's Jackson Hole summer camp for central bankers in August. Yellen will speak there and be able to give an explicit, technical framework for tightening to an expert audience.
  • UK GDP data is due (the data is subject to much subsequent revision). The numbers will probably get disproportionate attention. As the UK's exit from the EU is more about trend growth than cyclical growth, it is not worthwhile trying to see the consequences of the exit in today's figures.