Stephanie Flanders: Trump needs to commit to Yellen

The most reassuring statement investors need from Donald Trump would be a commitment to see the Federal Reserve's chair finish her mandate, JP Morgan Asset Management's Stephanie Flanders says.

Following yesterday's US presidency victory by Trump, commentators have continued to raise concerns that a change in the Fed leadership has become more likely.

This follows Trump's recent criticisms of the US central bank with suggestions that Janet Yellen could leave her post as the Fed's chair in the event of a Trump victory.

Flanders, who is the chief market strategist for UK and Europe at the US asset manager, says: “From a market standpoint, the single most reassuring statement that Trump could make over the next few weeks would be one saying that he supports the independence of the US central bank and he would delighted to see Janet Yellen stay as chair when her current term ends in January 2018. On the campaign he said he would replace her. That's one promise he should break.

“Of course, whether chairwoman Yellen will want to stay is another matter.”

At the Fed's September meeting, Yellen hit back a Trump's claim that the bank's decision making was being driven by its willingness to help the Clinton campaign, rather than the US economy.

Speaking at the press conference following September's FOMC meeting Yellen said she “can say emphatically that partisan politics plays no role in our decisions” whether or not to raise interest rates. “We do not discuss politics at our meetings,” she said.

As reported yesterday, the likelihood of a US interest rate hike in December dropped from over 80 per cent to 50 per cent following Trump's election win, as well as rate expectations for 2017.

Meanwhile, Flanders and her team are not predicting “a radically different path” for the US economy or for US interest rates following the election results result.

She says: “The combination of looser fiscal policy and increased uncertainty over globalisation would be likely to mean a stronger dollar and potentially higher US inflation and higher interest rates.  That is not a hugely helpful combination for the rest of the global economy, especially emerging markets.   But that, too, is uncertain and could take time to materialise.”

In May, Flanders said the US economy is the most important short-term global influencer – rather than Brexit. She said the prospects for the US look reasonably positive as long as the central bank can keep to its plan to return interest rates to more “normal” levels.

At that time Flanders expected two further interest rate hikes by the Fed in the second half of this year.

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