In the eyes of Rick Rieder, the global chief investment officer of fixed-income at BlackRock Inc., the bond market knows that the Federal Reserve is bigger than just one person.
Unless that person happens to be John Taylor.
As speculation swirls about whom President Donald Trump will pick as Fed chair, traders in the $14.1 trillion Treasuries market can take comfort knowing the next leader will likely follow through on Janet Yellen’s plan to gradually raise interest rates and trim the central bank’s $4.5 trillion balance sheet.
To Rieder, that even includes Kevin Warsh, seen by some as one of the more hawkish on the president’s short-list. That helps explain why benchmark 10-year yields are near their 2017 average, even after rising the past three weeks, while rates on shorter maturities grind higher.
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One wild card for markets who’s still in the running, though, is Taylor, the Stanford University economist known for the monetary-policy rule that bears his name. He’s viewed as a long shot by betting website PredictIt, but is believed to still be under consideration, according to two people familiar with the matter.
“I’d say today, the markets are expecting that he’s probably not going to be the candidate, but yes, you could see the markets react to that,” Rieder said. He expects 10-year yields to climb to 2.5 percent to 2.75 percent by year-end, from 2.35 percent now, and that’d likely happen even sooner with a Taylor nomination.
By contrast, the reaction would be “muted” in the near-term if someone else on Trump’s short-list gets the nod, he said.