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Hawk or Dove to replace Janet? Print
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Is Janet Yellen a Hawk or a Dove?

We never really found out what she truly belived. She was both at times and while she was a Hawk telling us she was "minded to tighten rates", Donald Trump was a Dove, saying he wanted a weak dollar so interest rates would have to remain low.

 

Three days ago it was said that Trump favoured John Taylor for the new Fed chair. Another accademic of course, a theory man. Taylor is een as a Hawk, stronger dollar. He would likely hit the interest rate button as inflation ticks up.

His claim to fame is the Taylor Rule. All academics need a widely talked abot theory to impress other academics, and their students of coure.

The rule states that for evry 1% increase in inflation, the nominal (fed funds) interest rate must also rise by 1%.

And how did the $DXY react to the news, suprise suprise, it ticked up for a few hours helping it's uptrend along!

 

From the blog

Buy the rumour, sell the fact

Has it all been over cooked? The Trump US$ rally seems to have kicked off on the basis that his policies will be inflationary and so interest rates will have to rise. Added to this, the Fed has been telling us all year there will be at least a modest rate increase. Next Wednesday 14th is the last opportunity the Fed and Janet Yellen have to do the deed, consequently the market is convinced it's a done deal and priced it in with the Trump rally.

But the TMEST swing chart is suggesting the dollar rally could be rolling over. So we had best trade what we see and not what we think, or have been told to think!

Markets have a habit of rising on rumours of good news and then promptly reversing when it's actually announced, as further expectations of good news slip away. Perhaps the market is coming to the idea that the US economy, talked up over the last year is just that, talk.

If Trump is to boost the economy it's not going to happen instantly. Any delays, and if the US economy actually turns out to be weak at the start of 2017, could result in what usually happens in the year following a two term presidency. Recession.

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