Fed: Uncertainty about policy next year – Danske Bank

In view of analysts at Danske Bank, it has become more difficult to say what the Fed will do next year.

Key Quotes

“With Stanley Fischer stepping down on or around 13 October, there will be four vacant seats (Randal Quarles has been nominated but not approved yet) and possibly five if Yellen is not reappointed Fed Chair, which is not our base case. This means Trump has the power to shape the Federal Reserve in the way he wants (although the Senate has to approve his nominations). Although Trump does not seem very interested in monetary policy, the Republican Party certainly is, as many Republicans are dissatisfied with the Fed’s low rate policy.”

“Many Republicans want a more rule-based Fed, which bases its monetary policy decisions on a policy rule (a simple Taylor rule suggests the Fed funds rate should be around 3% at the moment). In other words, we might see a more hawkish and rule-based Fed next year but the uncertainty is high.”