Halister News

(Bloomberg) -- Outcome of Nov. 8 election should lead to steeper fed funds target rate over next several years and reduce risks associated with debt limit; could result in TED spread widening due to repatriation flows, BofAML strategist Mark Cabana writes in note.

• Fed has likely already seen enough economic progress to warrant a Dec. rate hike; policy makers will likely base decision on extent of any tightening in financial conditions and indications of economic uncertainty post-election
  • Market pricing of at least 60% for Dec. hike, without material tightening of financial or economic conditions, should be sufficient for Fed to move forward
• Beyond 2017, there’s risk Fed may need to adopt more aggressive tightening if Trump, Republican Congress pursue meaningful expansion in fiscal stimulus
• Will likely be fair amount of turnover in FOMC’s leadership in coming years; potential vacancies from two open governor seats, expiration of Yellen and Vice Chair Stanley Fischer’s terms in 2018 could result in significant reshaping of FOMC’s core
  • Unlikely Trump would reappoint Yellen; possible he would appoint people that favor more rules-based approach to policy making or are more amenable to having Fed decisions audited; such considerations would likely result in steeper front-end of yield curve