Fed: Guided by the outcome of the US elections - RBS

Research Team at RBS, suggests that today all eyes will be on the outcome of the US election on Tuesday and if Clinton wins, uncertainty will be removed and the expectation will be “business as usual” with respect to the economic outlook and government policy.

Key Quotes

“In that event, we expect the market’s focus will shift to the Fed and the (increased) odds of action in December. In contrast, a Trump victory would trigger massive uncertainty that would likely undermine risk assets (at least initially) that in turn could preclude a Fed rate hike this year. However, over the longer-run, a Trump victory would fuel speculation over a more hawkish Fed policy, since the individual that Trump nominates to replace Yellen when her term as Fed Chair expires in January 2018 is expected to be far less dovish.

In addition, while increased uncertainty in the wake of a Trump victory – along with fears over Trump’s anti-trade and anti-immigration stance – could pose near-term risks for the US economy, some of his proposals (e.g. corporate tax cuts) could benefit the US economy over the longer-run, generating more inflation. The combination of higher inflation and more stimulative fiscal policy would be consistent with higher interest rates over the longer-run than current anticipated.”