Race to be next Fed Chair enters closing stages

The markets are right to remain relatively sanguine over the upcoming decision on who will be the next Fed Chair, since the Fed’s low rate regime will probably continue with President Donald Trump picking Jerome Powell. But there is still uncertainty over exactly what criteria Trump will use to judge his five candidates and it is still possible that Trump will have a late change of heart. If it turns out that a commitment to deregulation is more important than keeping rates low, then that could open the door to a much more hawkish Fed under the control of either Kevin Warsh or John Taylor. Under those circumstances, we would expect to see an immediate rise in Treasury yields.