And now the bond market weighs in

Mark Sadowski sent me the following:

Bond investors believe the Federal Reserve led by Summers would create more anxiety about rising interest rates and a central bank less committed to its current loose monetary policy at a time when concerns over rising interest rates are elevated. Bond yields rise when prices fall. Summers is not seen as a true disciple of Fed Chairman Ben Bernanke.

In contrast, Yellen is believed to be more friendly to bond prices and a boon for bond bulls. Yellen has been perceived as an ultra dovish in Fed policy-making circles and has been known as a close ally to Chairman  Bernanke in advocating ultra loose monetary policy to juice the economic recovery. Bond traders expect she would keep rates low for longer.

.  .  .

Already, worries that Summers may be the front runner and get the job had contributed to the selloff in Treasury bonds on Wednesday, traders said. Thursday, the fear continued to weight down bond prices, trader said. The benchmark 10-year note was recently 9/32 lower in price, yielding 2.624%. Bond prices fall when their yields rise.

I’d prefer to use the stock market as an indicator, as interest rates are not reliable.  But interesting nonetheless.

For years pro-Obama commenters have been telling me that we are stuck with a tight money policy because Obama can’t get his picks past the big bad GOP in the Senate.  (Which was not really true, as he didn’t even nominate anyone in 2009 when he had a filibuster-proof majority.)  Now we find out that Obama prefers Summers over Yellen, even if he had a free hand.  And Summers appears to be more hawkish than Bernanke.

PS.  A question for Fed experts:  Can I assume that the GOP cannot filibuster Yellen, as she would already be acting Fed chair from the day Bernanke resigns?

PPS.   Yellen forecasts better than Plosser.  Why am I not surprised?



5 Responses to “And now the bond market weighs in”

  1. Gravatar of SG SG
    29. July 2013 at 04:41

    Have you seen Krugman’s latest? It’s a great post highlighting a serious misunderstanding of monetary policy within the White House.

    “So, here we are with inflation at a long-term low, many economists arguing that we need higher inflation expectations, and unemployment the overwhelming problem we face. Yet Obama appears if anything to give more emphasis to inflation-fighting than to unemployment reduction, and throws in stuff about bubbles; basically, he has a definite tight-money lean. I don’t know who it’s coming from.”

  2. Gravatar of foosion foosion
    29. July 2013 at 04:43

    “Janet L. Yellen took office as Vice Chair of the Board of Governors of the Federal Reserve System on October 4, 2010, for a four-year term ending October 4, 2014. Dr. Yellen simultaneously began a 14-year term as a member of the Board that will expire January 31, 2024.”

    In the absence of the chair, the vice chair serves. Therefore, she could serve as acting chair until 2014. If there is no chair and her term as vice chair expires, the rest of the board would elect a member to act as chairman pro tempore. especially part 4

  3. Gravatar of Vivian Darkbloom Vivian Darkbloom
    29. July 2013 at 05:05

    Zerohedge had a recent post about the succession issue (which is basically consistent with the above comment by foosion).

    As I see it, Obama would be able to exercise somewhat more influence over the Federal Reserve if he were to nominate someone already on the Board (e.g. Yellen) as Chairman. While Bernanke could, I think, theoretically continue as a Board Member this is unlikely and, as far as I know, unprecedented. If Yellen is nominated and appointed, I believe that means that Obama would also nominate another “ordinary” Board member to fill the spot vacated by Bernanke. So, he would not only determine the Chairman, but also that additional member. If, however, Yellen remains and someone else (e.g. Summers) is appointed (and Yellen stays) the Chairman would be that additional member.

  4. Gravatar of ssumner ssumner
    29. July 2013 at 05:56

    Everyone, Thanks for that information.

  5. Gravatar of TallDave TallDave
    29. July 2013 at 12:37

    Again, the Obama admin only understands politics. Remember, these guys thought so highly of dumping taxpayer dollars into Solyndra — a company pretty clearly headed for bankruptcy at the time — that they had Obama promoting the deal.

    They will nominate the most political person. That person is Larry Summers.

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