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September
8
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Week In Review

Fed Leadership

Vice-chair Stanley Fischer announced his resignation from the Fed, and the Wall Street Journal reported that White House economic director Gary Cohn is unlikely to be nominated to be the next chair when Yellen’s term ends in February. The names of several prominent economists and bankers have been suggested as possible successors to Yellen.

Our Take

With the addition of Fischer’s resignation, the Trump administration will have to fill up to five voting FOMC seats. This large number of seats that could turn over means that there may be a fundamental shift in the FOMC that could lead to a very different direction for monetary policy and financial regulation in the U.S.


ECB

The ECB left its policy tools unchanged. In his press conference, Draghi noted that the surge in the euro is tightening financial conditions and reducing inflation expectations, and indicated that this dynamic is a consideration for the ECB. Draghi also stated that any decisions on the future of the ECB’s bond buying program will not happen until at least October. The euro continued to rise during Draghi’s press conference.

Our Take

The ECB would clearly like to see the euro depreciate, but is so far unwilling to take tangible policy action to make that happen. At this point, the ECB seems to be waiting to see if the Fed’s expected announcement about balance sheet reduction works to raise dollar yields and take some of the upward pressure off the euro.


Municipals

Hurricane Irma left more than 1 million customers without power in Puerto Rico this week. Damage from the storm has affected the Puerto Rico Electric Power Authority, PREPA. Moody’s Investors Service stated this week that extended power outages “will have negative impacts on PREPA’s revenues.” The U.S. Virgin Islands also sustained power outages and damage this week.

Our Take

Hurricane damage to the Puerto Rico power grid is currently being assessed by workers, but recovery could be a lengthy and expensive process. As PREPA struggled financially and looked to cut costs, many workers took early retirement. Revenues will decrease during the outages, which PREPA cannot afford. Puerto Rico will likely look for help from the U.S. Government to recover from the storm.