There is a long history of presidential elections impacting the interest rate forecast. The uncertainty that a new president brings to the market always causes some fluctuation. The 2016 presidential election was no exception. In October, Forbes published an article stating, “People of all political stripes agree that the madness of this election season is worth waiting out.” The article went on the note that the Federal Reserve would be meeting on November 2nd to discuss whether or not they would be raising interest rates. The article predicted that the smart money was that they would not. In fact, Forbes said, “As of publication, there’s a 92.8% chance they’ll stay the same.” But like all things in 2016, there were many unexpected surprises ahead.
A chart from a December article in the Wall Street Journal paints a sobering picture about President-Elect Trump’s impact on interest rates when he won the U.S. presidential election. Before the election, interest rates were hovering at just above 3.5%. On election day, though, they saw a jump to 4.13%, better than a half of a percent. The Federal Reserve will meet again on December 13th. There is an almost universal consensus from economic experts that they’ll raise interest rates.
But what does President-Elect Trump have to do with it? In large part, it’s the uncertainty that he is bringing to the office. People haven’t been (and likely won’t be) able to predict the changes in policies that he may enact, so there is likely to be some fluctuation in interest rates for a while. There is concern that he could cause a higher budget deficit within the government, which is a cause for inflation. Inflation almost always signals a rise in interest rates. It’s not all about Trump, though. Unemployment rates are good and wages across the United States are growing, which gives the Federal Reserve a reason to raise interest rates slightly. Essentially, it could come down to a stronger economy and concerns of inflation that are driving up the interest rates more than anything else.
It’s almost universally agreed by economists that the interest rate is going to be raise at least twice, if not three times, in 2017. It’s best to prepare yourself for those hikes now. How much those hikes will be, though, has yet to be seen. It’s likely that as Britain begins the process of leaving the EU and Mr. Trump takes office, there will be slightly higher bumps in rates, though they are likely to level out by the end of the year.
Want to stay up-to-date with interest rate forecast news? Sign up for a free one-week trial of TrueCast MBS Forecasting. Our easy-to-use system uses our proprietary algorithm to determine changes in the market and how they could affect interest rates. You can learn more about our system on our website and sign up for your free trial. Have questions? Contact our team through our website and we’ll help you get the answers that you need.