US election outcome likely to be strong statement on interest rates, dollar and Fed

This year’s race to the White House has been like no other. Lot’s at stake here, trade policies, foreign policies, immigration policies, as well as domestic policies. In addition to those, the race has included an area, which politicians rarely venture and that is monetary policy. It is widely expected that the US Federal Reserve is an independent body, free from any political influence. So politicians usually don’t venture into that path. But, this year’s Republican candidate Donald Trump is no politician; he is a first timer in the game. Despite his inexperience, he has done remarkably well and in a very good place to become the next President of the United States. He has portrayed himself well as a candidate who is anti-establishment and for the people.

So, we wonder if the American people vote him to be the Commander in Chief, won’t that be a bold statement on his policies with regard to the Fed. He has publicly accused the Fed of keeping interest rates at a record low and thus creating a false economy. While Fed acts independently, policymaking members get selected by politicians. His open criticism of Fed chair Janet Yellen, who is considered to be on the dovish side of the spectrum, could mean that she may not get a renewal when her term ends in early 2018. A hawkish chair could surely make the whole Fed more hike tilted.

At this point, it is very difficult to gauge the exact impact of Trump’s selection as President but it is likely to have a profound impact on how Fed operates because Trump is in support of auditing the Fed. It could also mean the end of the dovish era in monetary policies.