Fed Policy under Trump Administration
Janet Yellen, Chair of the Board of Governors of the Fed, and U.S. President-elect Donald Trump have not exactly had an auspicious start to their relationship. This article will address how this important relationship might shape up and broadly speaking what impact it may have.
From an investment perspective it will also be seen that the dollar is likely to gain steadily in value over the coming years, with U.S. Treasury bonds falling correlatively. U.S. shares are also likely to see upward trends broadly continue, with “home” based exporters the main losers.
While on the campaign trail, Trump consistently lambasted the Fed, and its Chair. According to the President-elect, Yellen is 'very political and to a certain extent, I think she should be ashamed of herself.' She has been accused of being 'more political than Hillary Clinton', and of being part of a political establishment that has 'bled our country [the U.S.] dry.' The Fed itself has also been described as 'not doing their job.' Yet whilst such an aggressive tone might seem to preclude any kind of working relationship, you don't get to lead institutions such as the Fed and the U.S. Government without being able to cut deals with people you wouldn't normally break bread with.
Six months ago the tone of the conversation was of course somewhat different. Then, Trump didn't think Yellen was doing a bad job. Recently, now that Trump is in office, there have been some conciliatory noises.
What's important about Federal Reserve’s monetary policy meeting?
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With a pre-set regularity, a nation's Central Bank has an economic policy meeting, in which board members took different measures, the most relevant one, being the interest rate that it will charge on loans and advances to commercial banks. In the US, the Board of Governors of the Federal Reserve meets at intervals of five to eight weeks, in which they announce their latest decisions. A rate hike tends to boost the local currency, as it is understood as a sign of a healthy inflation. A rate cut, on the other hand, is seen as a sign of economic and inflationary woes and, therefore, tends to weaken the local currency. If rates remain unchanged, attention and also main news and analysis turn to the tone of the FOMC (Federal Open Market Committee) statement, and whether the tone is hawkish, or dovish over future developments of inflation.
How to trade Fed's Interest Rate Decision?
- Do not rely on the Fed to determine the direction of the dollar in the coming months.
- The dollar tends to follow its predominant trend when the Fed starts to hike rates.
- There is no direct link between the Fed hiking rates and the usd falling. When a weak usd has coincided with a Fed hiking cycle, it has been falling for some time.
- Due to this, we may see a muted reaction to a potential Fed rate hike.
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What they think about Fed
It appears to me that the FED's mandate has been to keep the Democrats in the WH.....You see - if Hillary is elected then Yellen can plot her next move without fear of retribution - I mean Trump has said he would throw her out if he was elected - and no one wants the first female FED Chair to go down in flames - do they?
Assuming the Fed does suggest the Dec rate hike at the next meeting, we still can't expect US yields to rise in lock-step. Too many doubts remain, not only about the US economy but also about what awful thing may emerge elsewhere. As for Evan's prediction of a total of three hikes, clearly no-body believes him.
What is the Fed?
The Federal Reserve System (Fed) is the central banking system of the United States and it has two main targets or reasons to be: one is to keep unemployment rate to their lowest possible levels and the other one, to keep inflation around 2%.
The Federal Reserve System's structure is composed of the presidentially appointed Board of Governors, partially presidentially appointed Federal Open Market Committee (FOMC). The FOMC organizes 8 meetings in a year and reviews economic and financial conditions. Also determines the appropriate stance of monetary policy and assesses the risks to its long-run goals of price stability and sustainable economic growth. FOMC Minutes are released by the Board of Governors of the Federal Reserve and are a clear guide to the future US interest rate policy.
WHO IS FOMC'S CHAIRMAN?
Janet Louise Yellen (born August 13, 1946) took office as Chair of the Board of Governors of the Federal Reserve System (Fed) on February 3, 2014, for a four-year term ending February 3, 2018. She had already previously served as a Vice Chair from 2010 to 2014. This American economist also serves as Chairman of the Federal Open Market Committee (FOMC), the System's principal monetary policymaking body.
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The World Interest Rates Table
The World Interest Rates Table reflects the current interest rates of the main countries around the world, set by their respective Central Banks. Rates typically reflect the health of individual economies, as in a perfect scenario, Central Banks tend to rise rates when the economy is growing and therefore instigate inflation.