I’ve been talking a lot about Taylor and his eponymous rule lately. I’ve made a point of saying all along that I think Yellen gets renominated for Fed Chair, but those arguments all basically apply to Powell also. I’ve been looking at FOMC voting patterns to see if Powell is even a hair more hawkish or dovish than Yellen, and I found something interesting. No Fed Governor has dissented since the June 2012 meeting (Powell’s first).
I keep referencing an old blog where I broke out the pieces of the Taylor Rule … poorly. This will be the new one that I point to, and I think that this is pretty interesting so far. The media is kind of fetishizing the Taylor Rule because it makes the race more interesting: “Will it be Super Dove Janet Yellen who plays fast and loose with the rules or Super Hawk John Taylor whose decisions are super predictable because they’re all based on a perfect model?”
This is so weird … why is the race for Fed Chair so much like reality television? Is Trump making this happen for some reason? Do people just love the horse race?
Reuters headline: “Fed chair choice down to Powell, Taylor, one source tells Politico”
To be fair, I can’t find the Politico article. But that headline totally misrepresents the reality of the story. Sentence 1 of the actual story in Reuters:
President Donald Trump’s search for the next chair of the U.S. Federal Reserve has come down to Fed Governor Jerome Powell and Stanford University economist John Taylor, Politico on Thursday cited one source as saying, while another counseled caution.
50% of our sources say Yellen is out! 50% of our sources say we don’t know who’s out!
I’m so annoyed at Reuters that I’m not going to link to their article. Don’t waste your time looking for it.
Am I extra attuned to it recently, or is there a TON of talk about inflation these days? The BOJ doesn’t care about low inflation, the Philly Fed says some inflation goes away because stuff is free online, and Yellen is talking specifically about changing inflation expectations. Weird.
- Don’t bet on Trump’s Fed pick to really move the bond needle. FT
- “No need to take excessive steps to meet price target.” Reuters
- The ECB decision is exactly what they said it would be. CNBC
- Measuring the “Free” Digital Economy. Philadelphia Fed
- Did Yellen dent the Fed’s credibility on inflation? Bloomberg
The media seems to think that if Yellen is re-nominated as Fed Chair, stocks will skyrocket … but there’s probably not as much difference between potential Chairs as we think.
During a speech last week, Yellen acknowledged that even a little downturn, which would necessitate a few percentage points of easing under “normal” circumstances, could require additional use of “unconventional” monetary policy. Obviously, this is true … if your main weapon is to lower rates, and rates are near zero, you have to find another weapon.
I’m a sucker for long form interviews where they largely just give the transcript. There’s a lot of good stuff from Boston Fed President Eric Rosengren (nonvoting until 2019) in this NYT piece.
Right off the bat, he hits us with this gem:
“A number of papers at the conference highlighted that some of the economic relationships that are frequently assumed to be stable over time have proven to be not so stable as we have come out of the financial crisis. These structural changes mean that if you tried to have a model that was fairly invariant to these changes, or a process that was invariant to these changes, there would start being big misses in monetary policy.” – Rosengren
It’s early in the process … I’m going to add a few links everyday, and some of them are going to be dated. I’ll get through my back catalog sooner or later.
- European high-yield bonds yield the same as US 10yr. Janus Investors
- The Dovish and Not-As-Dovish FOMC members debate inflation. Bloomberg
- Is the 2% inflation target too low? Economic Policy Institute
- Bullard: Fed should defend inflation target. Reuters
- Fischer retires and likes Yellen for Chair. The Straits Times
The Trump administration has indicated that they will select a Federal Reserve Chair within the month. Below is the Predict It prediction market for the top 6 candidates. Over the next couple of days, I’ll give an outline of each candidate … hopefully before the nomination.