Wednesday, November 9, 2016

Trumps Wins...What Will Happen to Interest Rates?

From an article in in the November 9th USNews and World Report:

The sun will rise on Nov. 9. The election will be over – hopefully – and odds are good that the world will keep spinning, regardless of which candidate snatches up the most Electoral College votes.

"What happens next?" has been a difficult question to answer over the last several months, in part because of how close the polls have been and in part because both GOP nominee Donald Trump and Democratic candidate Hillary Clinton have flipped or waffled on key issues during this election cycle. It's simply been tricky to predict what's actually in store for America once the polls close and the ballots are counted.

Officials at the Federal Reserve, however, have had the unenviable job of trying to wade through the election noise – which may be interfering with their much-studied economic indicators – in order to chart a clear path for their benchmark interest rate.

The Fed entered 2016 with most officials expecting to raise interest rates four times. That projection was cut in half after a sluggish start to the year, and a hike was delayed again after the United Kingdom opted to leave the European Union at the end of June.

If the Fed raises rates at all in 2016, it will only be once. The Federal Open Market Committee will convene in Washington for its final meeting of the year on Dec. 13 and 14, deciding once and for all whether rates will rise before year's end.

So will election night results influence central bankers' decision-making come December?

"Yes. Look, the markets have made it clear that a Trump presidency would introduce very substantial uncertainty and consequently spook the market," says Robert Shapiro, former undersecretary of commerce for economic affairs, co-founder and chairman of advisory outfit Sonecon, and a former adviser to President Bill Clinton. "If the Fed was looking at the prospect of a trade war with China and Mexico starting Jan. 20th or so, I think it would certainly affect their decision-making."

In theory, the outcome of the election shouldn't influence Fed decision-making. After Trump repeatedly accused them of letting politics influence their monetary policy decisions, Fed Chair Janet Yellen and some of her colleagues clarified that the central bank functions independently of political turmoil.

"I can say emphatically that partisan politics plays no role in our decisions about the appropriate stance of monetary policy," Yellen said at a press conference in September.

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