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US election outcome could impact interest rate options
Thursday 03 Nov 2016 Author: William Cain

Hillary Clinton and Donald Trump’s race to the White House means US non-farm payrolls due 4 November are unlikely to budge interest rate expectations.

Market expectations of an increase at the US Federal Reserve’s final meeting of the year (14 Dec) are running close to 80%, largely predicated on a Clinton win on 8 November, because of rising real wages and early signs of a pick-up in inflation.

Trump Clinton Table

Jobs numbers are closely followed by the Fed and under normal circumstances tighter labour market conditions would indicate rates should rise to prevent the economy from overheating.

But that could change if Trump wins the presidential vote. While Trump has claimed interest rates are currently too low, the Fed would most likely hold interest rates at current levels after a Trump victory to stave off concerns over economic and financial instability, in Shares view.

Counter to this, research by AXA Investment Managers indicates no relationship between changes in election polls and market expectations of Federal Reserve policy.

Any potential change in Federal Reserve’s approach to monetary policy would only come when Janet Yellen’s mandate as Fed chair ends in 2018, AXA’s research and investment team argue.

Analysts expect a 178,000 gain in net new jobs for October, up from 156,000 in September. That is just over half the 295,000 number of jobs created in the same month last year. (WC)

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