On Yellen at Jackson Hole
Yellen’s chances for reappointment as Fed chair just got worse. By coming out as an opponent of relaxing financial regulation, she is signaling she would be a poor partner for Trump’s deregulatory crusade. But if he appoints someone else, there is the risk it will be a permahawk like Taylor or Goodfriend, preferred by the GOP establishment. Cohn is an unknown on policy, but there is no reason to think he is a permahawk, and he would likely champion a rollback of regulations. The speech is, at the margin, a negative for growth because it creates these uncertainties. Meanwhile, the market is correct – under current inflation and growth assumptions – to see only two more rate hikes over three years. We see no risk from the onset of a gradual and tightly-capped balance sheet normalization program.