Political Chaos Reduces Likelihood of Interest Rate Hikes
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Political Chaos Reduces Likelihood of Interest Rate Hikes
By www.ForexConspiracyReport.com
Problems emanating from the White House are taking the dollar down. Looking ahead Forex traders are less sure about the expected interest rate hikes by the Federal Reserve. Bloomberg writes that Washington chaos hits the bond market.
The bond market is interpreting what could be the deepest crisis of Donald Trump’s presidency as throwing the Federal Reserve off its path for interest-rate increases this year.
The odds that the central bank raises its benchmark rate next month are about 60 percent, based on the current effective fed funds rate and the forward overnight index swap rate. That’s down from 80 percent a week ago. The chances they move in September are also on the decline, and the fed funds futures market isn’t pricing in a full hike until November.
The Fed has been cautious in raising rates. Trump’s problems may well interfere with the plans to cut taxes, stimulate the economy with infrastructure spending, repatriate corporate cash and reduce government regulations. The economy will not heat up as fast as expected and inflation will cool off. Since the Fed decision will be driven by economic data the next interest rate increase will probably be delayed beyond the previous expected June increase. The Forex market sees this and the dollar has fallen.
There Went the Gains
With expectations of a booming American economy the dollar has risen since Trump’s election. Business Insider notes that the USD has lost almost all of its post-election gains.
The US dollar index is down by 0.2% at 97.890 as of 9:46 a.m. ET on Wednesday.
That brings the dollar back to roughly where it was just before the US presidential election. The index closed at 97.861 on November 8, the day of the election, according to Bloomberg data.
Analysts have suggested that the currency is suffering from the tumult of news coming out of the embattled Trump administration in the wake of the firing of FBI Director Jim Comey and bombshell reports that the president shared classified information with Russian Foreign Minister Sergey Lavrov and Ambassador Sergey Kislyak.
In particular, markets may be worried that the recent developments could stall the economically stimulative tax and infrastructure policies many investors hoped for after the election.
And fundamentals which always determine the final market prices of currencies and stocks are weak.
"The political morass that has engulfed the Trump administration is a major distraction at the same time that the investors had grown more concerned about the momentum of the US economy following the recent disappointment with retail sales, housing starts, and consumer prices."
Where Is This Going?
The business of governing is usually a matter of details and consensus building. After the politics of the election subside the president and both houses of congress ideally get down to the business of making laws and governing the country. That is not happening right now. All focus is on a president who has apparently shared top secret intelligence with the Russians, tried to get the director of the FBI to back off of an investigation and then fired that director. A hint of things to come is reported in a Washington Post article that says Republicans increasingly call for answers.
Congressional Republicans are increasing pressure on the administration to produce records related to the latest string of controversies involving President Trump, amid flagging confidence in the White House and a growing sense that scandal is overtaking the presidency.
Senate Majority Leader Mitch McConnell (R-Ky.) broke his silence on the Comey affair to say lawmakers “need to hear from him as soon as possible.”
“I think we need to hear from him about whatever he has to say about the events of recent days, as soon as possible, before the Senate Intelligence Committee, in public,” McConnell said in an interview with the Wall Street Journal.
The Senate majority leader has previously either supported Trump or remained silent of issues relating to the president. The fact that one of the most powerful members of congress and from Trump’s own party is suggesting that the president sit before a senate committee is telling. This is not going away and unless someone locks the president in a closet and takes away his twitter account it won’t. The dollar is down. The proposed economic agenda is on hold. And interest rate hikes are somewhere in the future, maybe.
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