LIVE MARKETS-Trump wants lower rates, but new Fed chairs bring a bump

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TRUMP WANTS LOWER RATES, BUT NEW FED CHAIRS BRING A BUMP

U.S. President Donald Trump has made no secret that he wants lower interest rates and Federal Reserve Chair Jerome Powell isn’t bringing them fast enough. But history shows that new Fed Chairs typically send yields higher, at least for a time.

Trump said on Friday he would love if Powell were to resign while also saying that he wanted interest rates cut to 1%. Powell has indicated he has no plans on leaving however, and Trump is expected to replace him with a more dovish appointment when his term ends in May.

Bank of America analysts led by Michael Hartnett found that the bond markets tend to “test” new Fed Chairs, and yields rose in the three months following their nomination in each case since 1970.

Two-year yields rose by 65 basis points, while 10-year yields increased by 49 basis points. The U.S. dollar, meanwhile, fell 2% while the S&P 500 was mixed, the analysts noted. The nominations include Arthur Burns, William Miller, Paul Volcker, Alan Greenspan, Ben Bernanke, Janet Yellen and Powell.

The variations between the Fed heads were wide, however. Volcker, who came in at a time of high inflation, saw by far the biggest increases in basis point terms, with a 211 basis point rise in two-year yields and a 147 basis point increase in 10-year yields.

Yellen and Powell, meanwhile, saw the smallest increases with Yellen overseeing a 4 basis point and 16 basis point increase in two- and 10-year yields, while Powell saw a 15 basis point and 7 basis point increase in the yields, respectively.

(Karen Brettell)

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