May 2016: Fed and the election

The tightly fought US presidential race, building momentum just as the UK limbers up for the 23 June European Union referendum, may soon become a factor on financial markets. November’s Republicans v. Democrats battle and the British plebiscite on Europe share common characteristics. They feature candidates seeking to allay voters’ fears over the negative effects of foreign economic intrusion, inequality and immigration in a world that often appears too connected for comfort. Robert Kaplan, president of the Federal Reserve Bank of Dallas, touched on some of these issues in an OMFIF lecture on 29 April, which we reproduce in an abridged form on p.13. He made clear central banks could be over-extended: monetary policy was ‘never designed nor intended to act in isolation’. He added pointedly that the Fed would be trying to stay out of the election race.

In this month’s Bulletin, we place under the spotlight the key issues confronting the US electorate on 8 November, in a competition that is developing (almost literally) towards a head-to-head encounter between Hillary Clinton and Donald Trump. Marsha Vande Berg focuses on the all-encompassing background theme of wage stagnation and the nation’s somewhat desperate desire to resuscitate (somehow) the American dream. Efraim Chalamish examines one principal source of fear about outside interference: Chinese investment in the US. Darrell Delamaide investigates how the Federal Reserve, in its drive gradually to normalise credit conditions, is signalling allayed concerns about global economic and financial hazards – foreshadowing a rate rise later this summer which, if all goes well, will not overly intrude into the electoral campaign. Ben Robinson looks at another global economic issue reverberating through the electorate: the rising dollar and the effect on emerging market currencies.

OMFIF’s monthly review records the nomination of three economic experts from different parts of the world – Kingsley Moghalu, Niels Thygesen and Robert Johnson – as senior advisers, joining a now eight-strong group. We portray international developments including an asset management seminar in Singapore, sessions at the Washington spring meetings of the International Monetary Fund and World Bank, London discussions on central bank investing, and the signing of an accord on the internationalisation of the renminbi with China Construction Bank. In an essay on ‘Putin and the petrostates’, Michael Stürmer analyses the geopolitics of oil. John Mourmouras weighs up the pros and cons of ultra-low interest rates after the ratcheting up of Europe’s move into negative territory. Richard Koo of Nomura Research Institute outlines radical ideas on improving euro member countries’ capacity for self-financing. Brigitte Granville sums up her bleak views on France’s political entrapment in monetary union. Tarisa Watanagase, former governor of the Bank of Thailand, demonstrates how the Asean economic growth engine is ploughing through global vicissitudes. Jorge Vasconcelos shows how the world is moving towards a lower-carbon energy mix, with big implications for investors, as implementation gains ground following December’s Paris agreement on combating climate change. George Hoguet reviews a plea for a revival of ‘Hamiltonian’ industrial policy in the US in a book by Stephen S. Cohen and J. Bradford DeLong. Our advisory board provides their forecast for the US November vote. Overwhelmingly they believe Clinton will clinch it.

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