Multilingual content from IBKR

Close Navigation
Learn more about IBKR accounts

Could Politics Influence Fed’s Next Big Monetary Decision?

Posted November 5, 2021 at 12:00 pm
Keith Wade

With the tapering of bond purchases confirmed, attention now turns to when the US central bank may begin to raise interest rates.

No surprises from the US Federal Reserve (Fed) at its policy meeting. The long anticipated tapering of bond purchases will begin this month with the central bank trimming its asset purchases by $15 billion.

The Fed has said it will be flexible in adjusting the pace of the taper, dependent on economic data. At this stage, however, there is little reason to doubt that asset purchases will be reduced from the current pace of $120 billion per month to zero by the middle of 2022.

The question now turns to when interest rates will rise. The market is looking for a swift response with rates rising in Q3 next year and then again in Q4. However, Fed chair Jerome Powell was in no mood to stoke tightening expectations. He continued to describe the outlook for inflation as “transitory” and said the central bank would be “patient” in withdrawing stimulus.

While we expect the US economy to firm in Q4 this year, there is considerable uncertainty as to how growth and the labour market will evolve once the pandemic passes. Inflation is likely to slowly ebb, but the biggest constraint on an early Fed rate hike is likely to be political.

With the mid term elections looming, the hurdle for raising rates is high. The central bank may be independent, but its policymakers have always been wary of putting their heads above the parapet at such times. Consequently we would expect Powell to wait until the elections are over and raise rates in December next year.

Of course, it may not be Powell who is chair at that time. President Biden will decide soon on whether Powell remains in post when his current term expires. From a rate perspective though this should not change the view as the main contender Lael Brainard is seen as being a policy dove.

Originally Posted on November 4, 2021 – Could politics influence Fed’s next big monetary decision?

The views and opinions contained herein are those of Schroders’ investment teams and/or Economics Group, and do not necessarily represent Schroder Investment Management North America Inc.’s house views. These views are subject to change. This information is intended to be for information purposes only and it is not intended as promotional material in any respect.

Disclosure: Schroders

Important Information: This communication is marketing material. The views and opinions contained herein are those of the author(s) on this page, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. This material is intended to be for information purposes only and is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. It is not intended to provide and should not be relied on for accounting, legal or tax advice, or investment recommendations. Reliance should not be placed on the views and information in this document when taking individual investment and/or strategic decisions. Past performance is not a reliable indicator of future results. The value of an investment can go down as well as up and is not guaranteed. All investments involve risks including the risk of possible loss of principal. Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy. Some information quoted was obtained from external sources we consider to be reliable. No responsibility can be accepted for errors of fact obtained from third parties, and this data may change with market conditions. This does not exclude any duty or liability that Schroders has to its customers under any regulatory system. Regions/ sectors shown for illustrative purposes only and should not be viewed as a recommendation to buy/sell. The opinions in this material include some forecasted views. We believe we are basing our expectations and beliefs on reasonable assumptions within the bounds of what we currently know. However, there is no guarantee than any forecasts or opinions will be realized. These views and opinions may change.  Schroder Investment Management North America Inc. is a SEC registered adviser and indirect wholly owned subsidiary of Schroders plc providing asset management products and services to clients in the US and Canada.  Interactive Brokers and Schroders are not affiliated entities.  Further information about Schroders can be found at Schroder Investment Management North America Inc. 7 Bryant Park, New York, NY, 10018-3706, (212) 641-3800.

Disclosure: Interactive Brokers

Information posted on IBKR Campus that is provided by third-parties does NOT constitute a recommendation that you should contract for the services of that third party. Third-party participants who contribute to IBKR Campus are independent of Interactive Brokers and Interactive Brokers does not make any representations or warranties concerning the services offered, their past or future performance, or the accuracy of the information provided by the third party. Past performance is no guarantee of future results.

This material is from Schroders and is being posted with its permission. The views expressed in this material are solely those of the author and/or Schroders and Interactive Brokers is not endorsing or recommending any investment or trading discussed in the material. This material is not and should not be construed as an offer to buy or sell any security. It should not be construed as research or investment advice or a recommendation to buy, sell or hold any security or commodity. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

IBKR Campus Newsletters

This website uses cookies to collect usage information in order to offer a better browsing experience. By browsing this site or by clicking on the "ACCEPT COOKIES" button you accept our Cookie Policy.