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Updated, July 11, 2017 at 6:45pm

Breaking: Gary Cohn is now the leading candidate to succeed Yellen as the world’s most important central banker…

President Donald Trump is increasingly unlikely to nominate Federal Reserve Chair Janet Yellen next year for a second term, four people close to the process told Politico.

Yellen’s Job is Cohn’s if he wants it, and he would win Senate confirmation easily, one Republican close to the selection process told Politico.

National Economic Council Director Gary Cohn is now the leading candidate to succeed Yellen as the world’s most important central banker, these people said. Yellen begins two days of congressional testimony on Wednesday, and her own future in the job may come up in questioning.

You have to go back to the 1970s to see a non-economist Fed Chair, we’ve been telling clients all year – we believe Trump wants a practitioner, NOT another academic who’s never taken professional risk.  G. William Miller was Fed Chair under President Jimmy Carter, the last Chair outside academia to run the world’s most powerful central bank.

Yellen’s Legacy Has an Impact on Markets

Gold prices plunged again Friday, now 7% off their June highs, while the gold miners GDX sits 12% lower over the same period.  What’s going on?

As central bankers from the U.S., Canada, Europe and Asia have turned more hawkish (publicly discussed pulling back accommodation) – bond yields have surged while gold has plunged.

“If we were not to withdraw accommodation, the risk would be that the economy would crash to a very, very low unemployment rate and generate inflation.  Then the risk would be that we would have to slam on the brakes and the next stop would be a recession.”

Bill Dudley, New York Federal Reserve Bank – July 2017

Implied Probability of Deposit Rate Hike from the ECB*

July: 66%
June: 20%

*OIS swaps, looking out over the next 11 months to June 2018.  Most of this move higher occurred after Mario Draghi’s speech last week.  Banks like HSBC are anxiously adjusting their outlook, now forecasting 10-yr German bund yields will hit 90bps (53bps today – 22bps in June)) by year-end.  The breadth of that kind of sell off brings back memories of Jean Claude Trichet’s ECB.  Their 2011 rate hike was judged by most market participants as a disaster – pulling back accommodation into a deflation storm.

“We’ve not only reached full employment mark – we’ve exceeded it by a fair amount.  If we delay too long, the economy will eventually overheat, causing inflation or some other problem.”

John Williams, San Francisco Federal Reserve Bank – July 2017

In our opinion, President Trump is in Fed chair Yellen’s head – legacy in on her mind.  With Yellen’s term up in February… <read more here>