Friday, October 27, 2017

Chart of the Day: Market Reacts to Trump's Affection for Powell

In our October 5th blog post we suggested that Jerome Powell best fit the mold of a Fed chair any sitting politician would love. I.e., he has a reputation for going easy on monetary policy (for our purposes here, read interest rates).

News flash this morning:

"Trump Is Leaning Toward Powell As Next Fed Chair"

Want to know when exactly that news hit? Check out the circles on the chart below:  

Click to enlarge...

Yep, the idea of a Fed chair whose tendency is to go slow when it comes to adjusting monetary policy to economic data would indeed be bearish for the dollar, bullish (at this juncture) for gold, and bullish for bond prices (bearish for yields). 

In the long run, however, it can be problematic if the Fed falls behind the curve, as it did in the late 70s, early 80s. Not predicting double-digit inflation by the way...

As it turns out, while Powell may indeed be more dovish than the competition, a look at his record suggests he'd likely extend the momentum established under the Yellen Fed. Although it appears that he would push to lighten up on banking regs, which was not something Ms. Yellen was amenable to.

So, if I were you, I wouldn't go rushing out just yet to short the dollar, or to load up on gold and bonds...

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