In the wake of a Trump Presidency, the Fed is expected to hike interest rate as early as Dec 2016, when the Fed next meets on December 13 – 14.
Fed chair Janet Yellen to congress Joint Economic Committee: ‘Such a move could become appropriate relatively soon.’
The Fed last increased rates by 0.25 percentage points in December 2015, though it was projected that there could have been as many as four rate increases over the course of 2015.
Futures markets escalated rapidly, days after Trump clinched the US Presidency:
- The bond markets have turned around in the last ten days. The yield on 10-year US treasury bonds reached 2.33 percent on 20th Nov. its highest level for the year.
- Stock markets have hit record or near-record highs on the back of expectations that tax cuts, with a reduction in the corporate tax rate from 35 to 15 percent factored in, and a winding back of business regulations, will boost bottom line.
- The dollar index climbed to a 13-year high at one point after recording 10 straight days of gains.
- Emerging markets suffered a knock on effect with major stock markets having one of their worst openings to a year on record.
It is unclear yet what kind of impact a rate rise will have, but the past weeks have witnessed major falls in the currencies of emerging market economies and in their stock markets.
Bloomberg reported that emerging market bond markets are poised for their biggest losses since the so-called ‘taper tantrum’ of 2013 which saw a rush for the exits after Fed chairman Ben Bernanke had indicated the central bank would ease back on its purchases of bonds.
In short it may spell trouble for the global economy. Emerging markets previously enjoying dollar liquidity as investors searched for yield in an environment of near-zero and even negative interest rates, may be deprived of easy access to US dollar, owing to shortage, as interest rates and bond yields start to rise.