President Trump is reportedly set to announce his selection for the next Chair of the Board of Governors of the Federal Reserve (Fed) in the very near future, with Jerome Powell emerging as the likely nominee. Though he’s yet to make a final decision, reports suggest that a final decision will come before November 3.
In our latest Bond Market Perspectives, we took a dive into the potential shift in composition of Fed members in 2018, in addition to the chair, and why it could be quite hawkish—but what does new Fed leadership really mean? Per Ryan Detrick, Senior Market Strategist, “Just as a new President brings uncertainty, a new Fed chair can do the same. In fact, going clear back to Charles Hamlin (the first Fed chair) in 1914 and his 14 successors, the Dow is down on average six months after a new chair.” Keep in mind that the sample size is quite small and the results below are skewed due to WWI, the Great Depression, and the crash of 1987.
We’re not suggesting that a new Fed chair is likely to trigger a sharp selloff, but it would add to market uncertainty, and markets don’t like uncertainty. So we wouldn’t be surprised if Trump’s announcement spurs a bout of volatility, but when we look at the bigger picture, we continue to see very few signs of the excesses seen at previous major market peaks. This suggests very low odds of a recession beginning over the next 12–18 months and a likely continuation of the equity bull market in 2018.
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