President Trump will name a new Federal Reserve Chief on November 2nd. The current front-runner is current Fed member Jerome Powell, a deviation from past trends when the prior Fed Chief would be allowed to go for a second term. Current Chair Janet Yellen also likely remains in the mix as Trump is worried that removing her might disrupt the hardy stock market rally that has taken place since his election. But Trump voiced much displeasure about current Fed-head Janet Yellen during the 2016 presidential campaign (although she was not alone in that group). One longer shot for the position is Stanford economist John Taylor.   What is interesting is that he is well known for developing the ‘Taylor Rule’, which is a proposed guideline for how central banks, such as the Federal Reserve, should alter interest rates in response to changes in economic conditions. Taylor’s rule was established to adjust and set prudent rates for the short-term stabilization of the economy, while still maintaining long-term growth.  The chart below shows where U.S. short-term interest rates are currently (white line) while the blue line shows where interest rates should be according to the Taylor Rule. Clearly there is quite a gap, which is why bond and stock investors became more worried when John Taylor’s name was thrown into the mix..

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