Yellen’s future at the Fed

The media conclusion, following remarks Fed chair Janet Yellen gave at the yearly Jackson Hole financial elite meet up, was that she does not expect re-nomination. Yellen’s speech defended banking regulations put in place following the Great Recession, gainsaying the current administration which seeks to relax the costly stress testing and capital evaluation large US banks must undertake.

The chart below (from politics betting site PredictIt.com) shows how Yellen’s prospects for re-nomination have fallen. Yellen’s speech on Friday pushed her contract down from 31% to 23%.

It’s a dubious business for mere mortals to try and interpolate the dynamics behind national political figures. For whatever reason, Yellen is deemed less than likely to be picked by the administration. The market currently gives her 25% probability. Perhaps she needs to give the administration the appropriate winks and nods regarding policy, or perhaps the administration have their own reasons for nominating Gary Cohn, one of Trump’s obligatory Goldman-Sachs minders.

The market currently has no definitive answer as to who will get the job. Cohn is 5 points ahead of Yellen, but still only at 30%; Warsh takes third with 14%. We will have to await further clarity on the matter, though it should be said that Cohn would be an interesting candidate; having had a career as a trader, he may approach policy differently than the timid, Bernanke-Yellen ‘academic macro’ regime.

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