The Daily Update - Fed chair candidates

Today the US dollar seems to have halted the decline it had endured for the past few days. Treasury yields struggled to find their equilibrium yesterday, ending the day mostly flat, and are a touch lower today ahead of the forthcoming Fed meeting minutes. We should be able to see a little more detail on the discussions around unwinding the balance sheet and perhaps some important insights into the Fed’s view on the recent low core inflation figures. In any case, enjoy the finer points from what could be Yellen’s penultimate “full” Fed meeting (November and January meetings omit Economic Projections and Chair press conference).

For in around 100 days we could have a new Fed chair and if Trump’s words from a fortnight ago (that he’ll “be making a decision over the next two or three weeks”) are anything to go by–it may only be a matter of days before we find out who it will be. Yellen remains a possibility, with Gary Cohn, Jerome Powell and Kevin Warsh being the alternatives. Powell (or Yellen obviously) would be the most consistent with the current Chair in terms of (1) dovish/hawkish, (2) discretion in setting interest rate policy (rather than rules-based), (3) opposed to massive deregulation and (4) expectations of structurally lower growth prospects for the long-term.

Cohn could be an acceptable alternative but his candidacy seems to be tied to the success of President Trump’s tax reforms–which predictably Trump is revising over the coming weeks after a cold reception from fellow Republicans. We don’t see how any adjustments would adequately allay the many Senators’, like Bob Corker, concerns who continue to refuse to support a tax bill that would increase the US deficit. Nevertheless, should Cohn inherit the chairmanship we expect he would differ somewhat from Yellen: being more dovish, advocating for significant deregulation and importantly seems to believe that long-run growth prospects may not be lower with the potential for policy lift.

Then there’s Warsh. Economic and Fed pundits like Paul Krugman and Tim Duy have been unabashed with their criticisms towards Fed Chair candidate Kevin Warsh: with Krugman stating, “He’s been wrong about everything” and Duy posting an expose on how “These aren’t the kind of people you want in charge of monetary policy.” Pretty much all his major views are contrary to Yellen’s: from being more hawkish and more rules-based on interest rate policy, backing significant deregulation and view that the Fed Balance sheet should return to pre-crisis levels. But the overriding concerns, as Duy outlines, are much broader than these differences. His respected Fed Watch commentary goes so far as to say, “a Fed with someone like Kevin Warsh at the helm would prove to be disastrous for Wall Street and Main Street alike when the next recession hits.” Under such a scenario Trump would certainly get some of the blame for messing with what seems to be working, whereas there would be no grounds for such accusation should he appoint Yellen or even Powell. But Trump probably couldn’t care less, and so we wait for the announcement of his wise deliberations.

Please read this important information before proceeding. It contains legal and regulatory notices relevant to the information on this site.

This website provides information about Stratton Street Capital LLP ("Stratton Street"). Stratton Street is authorised and regulated by the UK's Financial Conduct Authority. The content of this website has been prepared by Stratton Street from its records and is believed to be accurate but we do not accept any liability or responsibility in respect of the information of any views expressed herein. The information, material and content provided in the pages of this website may be changed at any time by us. Information on this website may be out of date and may not be updated or removed.

The website is provided for the main purpose of providing generic information on Stratton Street and on our investment philosophy for the use of financial professionals in the United Kingdom that qualify as Professional Clients or Eligible Counterparties under the rules of the United Kingdom Financial Conduct Authority (the "FCA"). The information in this website is not intended for the use of and should not be relied on by any person who would qualify as a Retail Client. Products and services referred to on this website are offered only at times when, and in jurisdictions where, they may be lawfully offered. The information on this website is not directed to any person in the United States. The provision of the information on this website does not constitute an offer to purchase securities to any person in the United States (other than a professional fiduciary acting for the account of a non-U.S person) or to any U.S. person as such term is defined under the Securities Act of 1933, as amended.

The website is not intended to offer investors the opportunity to invest in any Alternative Investment Fund ("AIF") product. The AIFs managed by Stratton Street are not being marketed in the European Economic Area ("EEA") and any eligible potential investor from the EEA who wishes to obtain information on the AIFs will only be provided with materials upon receipt by Stratton Street of an appropriate reverse solicitation request in accordance with the requirements of the EU Alternative Investment Fund Managers Directive ("AIFMD") and national law in their home jurisdiction. By proceeding you confirm that you are not accessing this website in the context of a potential investment by an EEA investor in the AIFs managed by Stratton Street and that you have read, understood and agree to these terms.

No information contained in this website should be deemed to constitute the provision of financial, investment or other professional advice in any way. The website should not be relied upon as including sufficient information to support any investment decision. If you are in doubt as to the appropriate course of action we recommend that you consult your own independent financial adviser, stockbroker, solicitor, accountant or other professional adviser. Past performance is not necessarily a guide to the future. The value of investments and the income from them may go down as well as up. An application for any investment or service referred to on this site may only be made on the basis of the offer document, key features, prospectus or other applicable terms relating to the specific investment or service.

Where we provide hypertext links to other locations on the Internet, we do so for information purposes only. We are not responsible for the content of any other websites or pages linked to or linking to this website. We have not verified the content of any such websites. Such websites may contain products and services that are not authorised in your jurisdiction. Following links to any other websites or pages shall be at your own risk and we shall not be responsible or liable for any damages or in other way in connection with linking.

By using this site, you should be aware that we may disclose any information that we hold about you to any regulatory authority to which we are subject, or to any person legally empowered to require such information.

This website uses cookies to improve user experience, by clicking the "I Accept" button below means you consent to the use of cookies on our website.