November 8, 2016
Last week we spoke of “the really big shew” and today is the headline performance — The Presidential Election. First, let’s do a review of the preliminary acts. On Monday of last week, we had a release of the personal income and spending numbers. While they were in line with expectations, the personal spending numbers were especially strong. Taken together with a stronger than expected data on the growth of the economy for the third quarter, the numbers increase the probability of the Federal Reserve Board raising rates in December.
Indeed, when the Fed met and released their announcement on Wednesday, they indicated that they would not be raising rates this month as expected, just a few days before the election. However, the statement clearly indicated that a possible increase was on the table for December. Of course, the most important data was released on Friday after the Fed meeting. The jobs report showed an increase of 161,000 jobs in October. The report also indicated that the September numbers were revised upward by 35,000 jobs and the unemployment rate slipped down to 4.9%. Finally, wages grew at a faster pace, something the Fed is looking closely at.
Taken together with the earlier data we cited, this means that a December rate increase is definitely in the cards. While we are not expecting the results of the election to affect the chances of a rate increase in December, we are pretty certain that the election being over does increase the chances. This is especially true with the Presidential inauguration being just before the first meeting of the Fed next year. Theoretically, a new President in office should not affect the actions of the Fed, but certainly that sort of welcome would be ill-timed.
Source: Origination Pro