Trump’s ‘black swan’ win may upend Fed's plans for rate hike

© Joshua Roberts
Donald Trump’s election victory puts into question Federal Reserve’s plans for raising key interest rates at its meeting in December.

“It raises the odds that the Fed will not move in December,” said Mark Zandi, chief economist of Moody's Analytics, as quoted by Reuters.

Global uncertainty over Trump’s economic policies dragged stocks and the dollar down with T-bills and gold pushed higher in the final hours of voting.

Investors had widely favored Democratic candidate Hillary Clinton to win the election for the apparent predictability of her economic policies, and the expectation for a Fed rate increase next month.

Trump’s victory and the subsequent market response are seen as a strong reason to put the rate hike off.

The President-elect has repeatedly said he wants tear up or renegotiate international trade deals and introduce massive tax cuts. Trump also proposed giving the states more freedom in spending federal funds on health insurance for the poor.

“His tax cuts could open up a huge increase in the budget deficit and his trade sanctions could interrupt world trade. This could put us in a recession,” said Donald Selkin, chief market strategist at National Securities Corporation based in New York.

The lack of detail on how to implement the break-through proposals makes it difficult to evaluate them. But the Committee for a Responsible Budget said they could add $5.3 trillion to the country’s sovereign debt over the decade.

The Federal Reserve raised its benchmark rate to a range between 0.25 percent and 0.5 percent last December and has kept it steady due to the risks of an economic slowdown as well as market turbulence from abroad.

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Experts say Fed Chair Janet Yellen hates uncertainty and falling stock prices, reacting to both by standing still.

“We aren’t yet changing our formal forecast numbers, but as of right now the chance of a December hike probably is no more than one in three,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics as quoted by WSJ.com.