Tim­ing of Fed in­ter­est rate hike called into ques­tioned

The Sun (Malaysia) - - SUNBIZ -

WASH­ING­TON: Don­ald Trump’s vic­tory in the US pres­i­den­tial race throws into ques­tion the core as­sump­tion in global fi­nan­cial mar­kets that the Fed­eral Re­serve will raise in­ter­est rates soon and fol­low with fur­ther grad­ual hikes over com­ing years.

Fi­nan­cial mar­kets swooned af­ter Trump’s win, with the dol­lar and stocks sink­ing and safe-haven sov­er­eign bonds and gold shoot­ing higher, re­flect­ing fears of a pro­longed global un­cer­tainty over the Repub­li­can’s poli­cies.

Mar­ket tur­moil has stayed the Fed’s hand in the past, in­clud­ing a Chi­nese stock mar­ket slump in 2015 and the af­ter­math of Bri­tain’s vote to leave the Euro­pean Union last June.

In­vestors have tended to favour Trump’s Demo­cratic ri­val Hil­lary Clin­ton as a sta­tus quo can­di­date who would be con­sid­ered a safe pair of hands at home and on the world stage.

Trump has pledged to tear up or rene­go­ti­ate in­ter­na­tional trade agree­ments, which could set off a wave of pro­tec­tion­ism, threat­en­ing to stall a ten­ta­tive global eco­nomic re­cov­ery. His eco­nomic plans call for mas­sive tax cuts that many economists es­ti­mate would sharply boost the US bud­get deficit.

“It raises the odds that the Fed will not move in De­cem­ber,” said Mark Zandi, chief economist of Moody’s An­a­lyt­ics, of Trump’s vic­tory on Tues­day.

Trump’s win also casts doubt over Fed chair Janet Yellen’s fu­ture. He has ac­cused the Fed of keep­ing in­ter­est rates low to help Demo­cratic Pres­i­dent Barack Obama and in­di­cated he might re­place Yellen af­ter her term ends in Jan­uary 2018, lead­ing an­a­lysts to spec­u­late on whether she would re­sign ear­lier.

Adding to the un­cer­tainty for the Fed and calling its fur­ther rate path into ques­tion is the lack of de­tail in Trump’s eco­nomic plans. – Reuters

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