US Presidential Election 2016: The market says a Fed rate hike is now firmly off the table after Trump's win

 
Billy Bambrough
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Donald Trump has publicly criticised Fed chair Janet Yellen
Donald Trump has publicly criticised Fed chair Janet Yellen (Source: Getty)

Before today the US Federal Reserve was on the cusp of hiking interest rates for just the second time since the 2008 financial crisis.

Following Trump's shock win last night the chances of that happening are quickly evaporating. Early indications show a revision of a likely rate hike from 80 per cent down to 50 per cent.

Analysts have quickly reversed their positions on a Fed rate hike in December hike.

Many have also suggested Fed chair Janet Yellen, seen as a steady hand on the tiller, could be clearing out her desk shortly. Investors are closely watching for any indication of an emergency Fed statement today.

Here's what the experts are saying about the Fed and Yellen following Trump's victory.

Paresh Davdra, chief executive of RationalFX, said:

Markets will be analysing what the new President elect’s next move will be to understand and assess if he will deliver on what he has promised through his campaign but more importantly what his plans are for the Federal Reserve and what his thoughts are for keeping Janet Yellen as chair of the Fed.

Expectations of a US rate hike have decreased considerably with reports showing a revision of the rate hike from 80 per cent down to 50 per cent. In addition, global markets are showing mass upsets with equity and futures markets posting the biggest losses.

Geoffrey Yu, head of the UK investment office at UBS Wealth Management, said:

After the dust settles, policy and appointments will matter the most. For markets, what happens to Fed Chair Janet Yellen will be crucial. The impact of her future will be felt globally.

A spokesperson from NN Investment Partners said:

The impact on monetary policy and bond yields is two-edged. The immediate effect could be a risk-off reaction, leading to a decline in government bond yields. The uncertainty created by the Trump victory is also likely to make the Fed more cautious about raising interest rates.

This could be a positive factor for those emerging economies that rely more on foreign capital than on exports to the US, although the net effect could still be negative given Trump’s protectionist stance. The US dollar is likely to suffer in the near term because of the more cautious Fed outlook and the fear of protectionist measures.

Fabrizio Quirighetti, chief investment officer at SYZ Asset Management, said:

A December Fed rate hike is now less certain and, as explained here above, it should bring at least a pause, or a temporary reversal in the ‘reflation’ trade positioning experienced since the end of the summer. US Treasury yields, as well as other top quality government bond’s yields, are expected to fall back at least 20bp.

TIPS are expected to underperform in this environment, as well as credit markets, as spreads may get wider. Even if the spread widening appears to be limited at this stage, credit will anyway underperform government bonds.

Connor Campbell SpreadEx analyst said:

It is hard to really know what to say about Trump’s victory. 2016 now officially seems to be the year of hate and uncertainty, the global economy plunged into darkness where little is known about its future. One thing does seem to be for certain; there is no way Yellen and co. will hike rates in December.

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