What's a Fed chair worth to the market?

Author: Adam Button | Category: Central Banks

Point for point, what's the headline worth?

In the week or two ahead, we will almost certainly see a headline or a leak cross the newswires that Trump has decided to on a new Fed chair.

Markets will undoubtedly react but it's tough to say how much.

Bloomberg spoke with a few analysts. Priysa Misra at TD Securities said Powell will mean a 5bps drop in 10-year yields while with Taylor it could leap 10 basis points. That would take it through 2.40%, which is a critical technical level, one Bill Gross said would signal the end of the bull market in bonds.

Wells Fargo analyst Michael Schumacher said the trade on a Taylor nomination is a 2s-10s flattener, with the spread narrowing 20 bps.

Steven Englander at Rafiki said the US dollar could gain as much as 3% on Taylor but fall 0.5% under Powell.

Looking more broadly, Taylor is the one candidate markets are really worried about. The consensus is that he's a legitimate hawk.

So while most moves will be fleeting, a Taylor nomination might leave a lasting dent in markets.


h/t @victorleonardib for the image