Halister News

(Bloomberg) -- “Transition tantrum” could be driven by concerns that next Fed chair might not take a sufficiently independent view of sustainable growth rate under Trumponomics or might favor more aggressive run-off of the balance sheet, Evercore ISI strategists Krishna Guha and Terry Haines write in note.

• In the near term, Trump’s and Yellen’s perspectives on U.S. economy overlap enough to align reasonably well on monetary policy; alignment will come under strain if/when there is significant fiscal stimulus
• Trump probably won’t appoint a “hardline hawkish” Fed chair to replace Yellen
• If next Fed chair isn’t independent enough to prevent overheating under Trump’s fiscal plan, could push up inflation risk premium; if chair prioritized speeding up reduction of Fed balance sheet, would push up term premium
  • Both scenarios would push yields higher, steepen yield curve
• First batch of Fed board nominations unlikely to be imminent