Fed Chief Admits Incoming Administration Causes Uncertainty

Federal Reserve Chair Janet Yellen told the Congressional Joint Economic Committee yesterday that stable unemployment, average job gains and an inflation rate nearing 2% could mean an imminent interest rate hike, despite uncertainty surrounding the policy intentions of the nascent Trump administration. During the election campaign, the president-elect promised substantial spending on infrastructure projects along with simultaneous tax cuts, serving to stimulate the economy and boost inflation. Yellen admitted this was cause for worry which could last for the undefinable future.

Nonetheless, she said it does nothing to change her belief that an interest rate increase will come “relatively soon” and that “greater clarity” would be needed about what the new government will be doing in order to assess their impacts on employment and inflation. With Republican control of the White House, Senate and House of Representatives, and Congressional Republicans expressing their desire for closer oversight of monetary policy, the Fed may have a struggle ahead in trying to maintain a long-term view of the economy. Furthermore, Mr. Trump has already indicated he will replace Yellen when her term expires in 2018.

In the meantime, market observers have raised the chances of a December rate hike to the 90 – 100% range. This, along with the US dollar’s strong showing, has exerted downward pressure on gold prices but the same observers note that the metal has not fallen as much as predicted. One analyst said the markets have already priced in the pending lift in interest rates as well as the shock of the election outcome, and the overreaction in gold is also coming to an end. Questions remain about what will happen once this period of volatility ends and the Trump presidency actually begins.