OK, so, the electoral results in the US took a lot of people by surprise (timidly raises hand).
Trying to figure out what would happen in the immediate aftermath is something better left to people paid to speculate on lack of information. Personally, I prefer to wait for the smoke to clear a bit before admitting I was wrong.
So, last time I said that a Trump win would make a Fed hike less likely, because of the ensuing uncertainty about what a Trump Administration would bring. What I wasn’t counting on was a very conciliatory victory speech by the new President Elect, which included, most importantly an announcement of a new $1T infrastructure spending plan.
The result was a bump up in most equities, making a Fed rate hike all but a certainty. Even Chairwoman Yellen testified before Congress that the right the hike is still on. The markets have subsequently priced in a .25% rise at the very least.
However, in the effervescence of the moment, I think quite a few analysts are forgetting how reticent Yellen is and has demonstrated to be, about putting behind accommodative policy.
While I’m freely admit I wasn’t good at predicting election results, I’m going to stand by my previous comments that Yellen is still very much interested in finding an excuse to not raise rates in December. We still have some data scheduled that could give her the reason she’s looking for.
NFP in December will be the pivotal point going forward; if there is any weakness (post-election economic performance is always somewhat muted), it could open the door to potential for a Fed rate stay. And with so much being priced in for a raise, even a little speculation that things won’t go as expected will put some exaggerated ripples in the market.
After all, while Trump has tried to provide a conciliatory, inclusive tone, the new opposition has showed no intention of being supportive. The increased political acrimony, as well as Trump’s already documented unpredictability, will lead to a lot more uncertainty and volatility.