John Taylor Enters the Fed Chair Race

A lot of conjecture surrounds the appointment of a new Chairperson for the Federal Reserve. Whilst Janet Yellen is still in contention to be re-appointed for a further term, it is believed President Trump will make a change and bring in a new incumbent. Her term expires in February 2018.

Her tenure has seen gradual retraction of accommodative monetary, calm and confident markets and an equity market which is surpassing all previous records. Calmness, confidence and stability are her attributes for re-election.

The field is down to five persons, Janet Yellen, John Taylor, Jerome Powell, Kevin Warsh and Gary Cohn. Much has been written on this topic and the reference today brings John Taylor, famous for the economics’ Taylor Rule, into contention. Simply, Taylor recommends the real interest rate should be 1.5 times the inflation rate.

His appointment would potentially accelerate the rate adjustment progress and retract accommodative policy settings earlier than currently expected under Janet Yellen. 

The equity markets continues to make solid upward movements. The Dow has touched 23000 overnight and closed at 22,997, putting on its last 1000 points in literally under 3 months. 

The next contender for an interest rate hike is lining up to be the UK. Their higher inflation trajectory warrants a potentially earlier rate rise than people have been expecting. Where the RBA takes the discussion of the appropriate alignment of our own interest rate settings to maintain stable and acceptable interest rate relativities with other global rates is the “64 dollar question”.

Peter Sheahan

Director - Institutional Markets