Timing of Fed interest rate hike called into questioned
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