Halister News

(Bloomberg) -- John Taylor as Trump’s pick for Fed chair would be negative for equities and send UST yields higher as the market prices in his Taylor-Rule model, which would imply a current fed funds rate of 3.75%, Kathryn Rooney Vera, Gregan Anderson at Bulltick, a brokerage, asset management and investment banking firm, write in note.

• Even so, concerns about Taylor’s hawkishness as possible head of central bank are “overblown and will present buying opportunities if he is selected”: Vera, head of research and strategy, and Anderson, a strategist
  • Taylor has recently advocated flexibility for policy makers, distancing himself somewhat from “rules-based” policy; in addition, the Taylor Rule is subject to wide variation based on assumptions used in formula
• Taylor and Kevin Warsh, the two candidates seen as most hawkish, are the likeliest to be selected by President Trump
  • If Warsh is selected, Bulltick expects faster roll-off of balance sheet; also sees downside to stocks, upside to UST yields, and appreciating USD
  • Warsh would push UST yields toward 2.4%, while Taylor would push them even higher
• If the market sells off due to the selection of a perceived hawk, it would be a buying opportunity for risk assets, especially EM and U.S. stocks
• Fed GovernorPowell has “fair chance” of being picked, considering he’s likely to cause minimal market disruption
• Re-nomination of Janet Yellen “is rather unlikely” given Trump’s preference to make his mark on the Fed and to install someone who shares his deregulatory view; probability seen as “very, very low (10%)”
• Interest-rate normalization to proceed gradually regardless of Trump’s pick
• “Good chance” of a dark-horse candidate being selected; there’s been significant talk about Glenn Hubbard as potential contender

To contact the reporter on this story: Vivien Lou Chen in San Francisco at vchen1@bloomberg.net To contact the editors responsible for this story: Benjamin Purvis at bpurvis@bloomberg.net Mark Tannenbaum