Various Fed policymakers has now publicly backed a December Fed rate hike. Including, Fed’s Philadelphia President Patrick Harker. Who also believes in a more aggressive rate hike path. Can we say that a 2016 Fed rate hike is certain?
17 November, AtoZForex – If the incoming Trump administration authorizes a fiscal stimulus, the US central bank may have to increase the rate hike even more than expected, according to Patrick Harker. On Wednesday, Harker said that a deeper path might be needed for the rate increase, adding that the Fed would try not to cause a slowdown with the rate increase.
Trump win changes Fed’s rate hike path
The original plan was to gradually raise rates, but after Republican Donald Trump won the U.S elections on November 8 it changed their plans. His victory led investors to bet inflation could increase if Trump keeps his promises regarding tax reduction and increasing spending on defense and infrastructure. Trump’s victory also raised questions about the new administration and Congress, whether it could authorize laws that would decrease the U.S central bank’s autonomy.
In Harker’s speech which was given earlier, he said that the Fed must keep its independence from America’s political life. Adding that the shifts in public opinion caused policymakers not changing course. He stated;
“The independence of the Fed is crucial to making the best decisions possible for the American economy.”
Also, Patrick Harker recalled the comments of the Fed’s policymakers in previous months. Which said that their financial books are already audited by independent accountants. And Fed officials said that they need to keep confidentiality over monetary policy decisions to avoid falling in political pressure. Harker stated that they don’t respond to shifts in public opinion or election cycles.
2016 Fed rate hike is imminent?
Can the markets expect that the 2016 Fed rate hike is certain? Although, analysts believe that is very likely, there is never a hundred percent certainty. The Fed had their last hike in December 2015, and Harker does not have a vote yet on monetary policies, but he will have next year.
Although, Trump did not expose any visions for the institution since he won the election. Yet, he supported in February more accurate audits of the Fed. Republican lawmakers have suggested “audits” of the Fed that would force it to reveal more information about its decision-making procedures for interest rate policy. And right now, Fed releases transcripts, five years after the meetings took place, for its policy meetings. Despite the fact that they post the minutes of meetings after few weeks.
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