U.S. Federal Reserve board member James Bullard has warned that fundamental changes stemming from potential policies of incoming president Donald Trump could mean that the Fed would need to adjust their strategy in the coming months, but he still made it clear he feels a rate hike is coming this holiday season.
Bullard, who is president of the St. Louis Fed, said the central bank is now focusing primarily on how they will tackle the 2017 rate path, leading many observers to conclude that a December rate increase is a done deal.
“We are concerned first and foremost on how the President-elect’s policies on taxation and spending are going to interact with Federal Reserve strategy next year,” Bullard told a conference in Germany’s business centre of Frankfurt.
“A December move by the FOMC is what the markets are betting on and I’m supporting that particular view.”
Traders recently upped their bets on a December rate hike by pricing in a 90 percent chance yesterday.
Many investors are expecting some of Trump’s new policies to have a definite impact on the American economy in the short term but that some of his proposals could take longer than he would hold the White House to bear any fruit.
“Trump can only stay in power for eight years, so some of his long term goals regarding immigration and infrastructure probably won’t be realised while he’s still in power,” said James Coleman, Managing Director and co-head of Portfolio Trading at Softbank CIBC International in an email to clients. “Trade agreements are another policy that can take a long time to come about, years of negotiations and stoppages. There can be an impact in these areas but not before many years, maybe even a decade.”
Some areas that could have an immediate effect are tax reforms and regulatory changes, especially in the financial sector. Investors and policymakers at the Fed are both keen to see the details of Trump’s proposed changes.
