The recent buzz in Washington regarding the next Fed Chair is centering on a new favorite, Stanford professor, John Taylor. He is the author of the “Taylor Rule” which is designed to provide recommendations to central banks based on data such as inflation, economic activity, etc. Proponents of the rule argue that it takes out much of the leeway and discretion from the FOMC in setting rates. The markets view Taylor as “hawkish” and some analyses indicate that the application of his rule would triple short term rates. His interview was said to “go well”, but interviews with dovish candidates such as Powell and Yellen are scheduled for the coming weeks. General sentiment towards higher rates and a flatter yield curve are coming from Chinese President Xi Jingping’s speech (pro-growth), progress on tax reform in Washington, and record highs on Wall Street. The 2 year T (sensitive to short term rate expectations) jumped to its highest level in 10 years on reports of Taylor’s strong interview, the 10 year is up nearly 10 bps in the last week (2.34% today). Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners
