US: Trump victory does little to dent 2016 rate hike expectations – Lloyds Bank

According to the Nikesh Sawjani, Research Analyst at Lloyds Bank, Trump victory has done little to dent 2016 US rate hike expectations, but uncertain policy outlook further ahead.

Key Quotes

“Comments so far from the incoming Trump administration point to the likelihood that they will adopt a more expansionist fiscal policy, driven by a combination of tax cuts and infrastructure spending. The 60bps or so rise in 10-year Treasury yields since the surprise election outcome reflects market optimism of ‘Trumpflation’. Still, there are also reasons for caution, as it remains unclear whether the President-elect will be able to muster sufficient Congressional support to get his policies through. From the Fed’s perspective, we think it is much too early for any signal of more aggressive policy tightening, not least because domestic inflationary pressures are building up only very gradually.”

“We expect the Fed this week to stick to its guidance of ‘only gradual increases’ in interest rates and for the updated ‘dot plot’ of FOMC participants’ interest rates forecasts to continue to imply two further hikes in 2017 to an upper limit of 1.25%.”