Trump is unlikely to drop the Fed issue - Commerzbank

Bernd Weidensteiner, analyst at Commerzbank, noted that Trump severely attacked the Fed at the presidential debate, to the point that Yellen felt compelled to highlight the Fed’s impartiality at a speech last week. If Trump were to win the election, the relation between the new administration and the Fed would thus be strained right from the start, the analyst said.

Key Quotes

“In the first presidential debate, Donald Trump severely attacked the US central bank. He accused the Fed of doing “political things“, placing special emphasis on “this Janet Yellen”. The Fed would keep interest rates low until the end of Obama’s term, he went on. And that was why the economy was in a “big, fat, ugly bubble”. Only once Obama had left for the golf course, would the Fed hike interest rates with some “very bad things” happening as a result. The Fed, he said, was not doing its job and was being more political than even Hillary Clinton. While in the 2012 primaries, the then Federal Reserve Board chair Bernanke had also been criticized by some Republicans, it is unusual for a presidential candidate to attack the Fed so heavily.”

“At the press conference following the latest FOMC meeting, Yellen felt compelled to highlight the Fed’s impartiality. The FOMC, she said, would neither discuss political issues nor would they be relevant in the Fed’s decisions. In the remaining weeks until the election, Trump is unlikely to drop the Fed issue either. If he were to win the election, the relation between the new administration and the Fed would thus be strained right from the start. And markets would certainly regard this as a significant risk.”