National Post (National Edition)
Yellen stands ground in The Fed vs. The Donald
OTTAWA • In an era of monetary uncertainty, there are still a few “known knowns” — to put it into Rumsfeldian speak — that we can take to the central bank.
First, we now know that Janet Yellen won’t be pushed around by any Donald-come-lately president, nor will the quiet-but-feisty chair of the U.S. Federal Reserve be dissuaded from getting at least one interest-rate hike on the books before the end of 2016.
Yellen also won’t be quitting her central bank job before her term ends in 2018, Donald Trump be damned.
A strengthening economy has emboldened Yellen to push back against the U.S. president-elect, lest he gets the wrong idea about who is really running the show. Yes, Trump could bark: “You’re fired!” But that is highly unlikely — just as he won’t kill the North American freetrade agreement, despite his campaign threats, nor build an actual wall the length of the U.S.-Mexico border.
But we also do know how Trump can create of cloud of uncertainty in the markets, here and around the globe, with just a few words — regardless whether they are politically or grammatically correct.
On the campaign trail, for example, he floated the idea of clipping some of the Fed’s powers, as well as accusing Yellen of being “highly political.”
Ironically, Trump said in a May television interview that Yellen “is not a Republican.” That we already knew.
But in case his views weren’t clear enough, Trump added that he “would most likely replace her because of the fact that I think it would be appropriate.”
In response, Yellen told Washington lawmakers last week: “I was confirmed by the Senate to a four-year term, which ends at the end of January, 2018, and it is fully my intention to serve out that term.”
Even before Trump is sworn in Jan. 20, though, Yellen and other members of the governing board will have moved to higher ground — edging rates up by at least a quarter point, to a range of 0.50 to 0.75 per cent, during the Fed’s policy meeting on Dec. 13 and 14.
That would be the first change in the key lending level since December, 2015 — far short of the original plan to increase rates four times this year, when policy-makers didn’t know what they know now, like stubbornly low global oil prices, slowing growth in China and the June 23 “Brexit” vote supporting the U.K. leaving the European Union.
Fast forward to Yellen’s testimony on Nov. 17 before the congressional Joint Economic Committee, where there was an air of optimism as she projected the longanticipated rate hike would come “relatively soon” — which could only mean at the Fed’s meeting next month.
Another known that we now know is that the economy is on the right track — with steady-but-moderate growth, an improving labour market and inflation that is headed toward the Fed’s two-per-cent target.
Sal Guatieri, senior economist at BMO Capital Markets, said “it looks that (rate) bar is clearly hurdled.”
So, after a December hike, “we’re of the view that they’re going to wait another six months to move on (the) rate again … and another six months after that — a little quicker time frame than the past year,” Guatieri said.
Now we know.
WE’RE OF THE VIEW THAT THEY’RE GOING TO WAIT ANOTHER SIX MONTHS TO MOVE ON (THE) RATE AGAIN … AND ANOTHER SIX MONTHS AFTER THAT — A LITTLE QUICKER TIME FRAME THAN THE PAST YEAR. — SAL GUATIERI, SENIOR ECONOMIST AT BMO CAPITAL MARKETS I WAS CONFIRMED BY THE SENATE TO A FOUR-YEAR TERM.