Clearly the most important development last week was the presidential election. Trump’s win was far more important for financial markets, the economic outlook, and monetary policy than the incoming economic data, which were very thin. Things are far from settled at this point, but we see the near-term outlook for the economy and monetary policy as unchanged: We still expect a rate hike in December. There is more uncertainty about the outlook, but no change in inclination to raise rates in December.
For our take on the outlook for Fed policy immediately after the election result, see First Thoughts on Trump and the FOMC: December Still in Play.
To learn more about reactions to the election results from global central bank leaders, see Global Policy Responses to Trump.
A few FOMC participants have given remarks since the election. Williams and Lacker both reiterated that the Fed is “non-partisan.” As such, Williams was confident that Fed independence would be preserved going forward: “From my perspective that’s the most important thing for the Fed–to continue to have the ability to make the monetary policy decisions that are best for the long run for the U.S….and I’m confident we’ll continue to have that support no matter what political change may happen.” Williams also addressed the current political environment that the Fed faces: “In terms of criticism of the Fed and many parts of government, I view that as part of democracy. I think it makes sense that people are asking the question of what did we do right, what could we have done better.”
On the topic of the consequences for monetary policy of a Trump presidency, Williams said that all developments go “into this funnel of, what does this mean for maximum employment and what does it mean for price stability?” He pointed out that “fiscal policy is only one of many things that affect the U.S. economy…it’s on the list of things we study.” Likewise, Kashkari said: “We take fiscal policy as an input into our analysis of what’s the appropriate stance of monetary policy…we’re going to have to wait and see ultimately what the Congress and the executive branch decide to do.” Bullard pointed out that the election “certainly breaks gridlock…you don’t have divided government.” Regarding the immediate financial market response to the election results, Bullard acknowledged that the market saw the election result as a surprise, but said that “there is not a level of global volatility that is troubling.” Williams said: “There’s always something out there. You have to make your best judgment.”
Fischer indicated that a December rate hike is likely: “In my view, the Fed appears reasonably close to achieving both the inflation and employment components of its mandate. Accordingly, the case for removing accommodation gradually is quite strong.” Fischer seemed to have a positive global outlook, saying, “I am cautiously optimistic that the drag on the U.S. economy and inflation from past dollar appreciation may have mostly worked itself out, and that foreign economies are on a somewhat more secure footing that poses smaller downside risks to the U.S. economy.” He called for a continued gradual increase in rates and said that he was “reasonably confident that the spillovers from ongoing U.S. monetary policy normalization will generally prove manageable for foreign economies.”