GLOBAL ECONOMICS AND POLITICS

Leo Haviland provides clients with original, provocative, cutting-edge fundamental supply/demand and technical research on major financial marketplaces and trends. He also offers independent consulting and risk management advice.

Haviland’s expertise is macro. He focuses on the intertwining of equity, debt, currency, and commodity arenas, including the political players, regulatory approaches, social factors, and rhetoric that affect them. In a changing and dynamic global economy, Haviland’s mission remains constant – to give timely, value-added marketplace insights and foresights.

Leo Haviland has three decades of experience in the Wall Street trading environment. He has worked for Goldman Sachs, Sempra Energy Trading, and other institutions. In his research and sales career in stock, interest rate, foreign exchange, and commodity battlefields, he has dealt with numerous and diverse financial institutions and individuals. Haviland is a graduate of the University of Chicago (Phi Beta Kappa) and the Cornell Law School.

 

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US ELECTION YEAR POLITICS AND FEDERAL RESERVE RATE MOVES (c) Leo Haviland May 22, 2016

The Fed cherishes the institutional self-perception of its independence from US political dramas. It therefore likewise does not want to be accused by its economic constituency (the so-called general public, and particularly important politicians) of playing favorites or otherwise being entangled within domestic politics.

My intuition is that in US Presidential election years, all else equal, the Fed generally prefers to delay noteworthy policy moves (Federal Funds rate changes and so forth) as Election Day nears. The window prior to the vote during which this guardian probably will not engage in important policy action is narrower than six months; around two or three months is my guess. In September (picture Labor Day)/October/very early November, the election battle is in full swing and thus probably too close. May/June are essentially pre-convention, so the Fed will seem less prejudiced (unfair, disruptive) if it acted then. July/August “as a rule” are distant enough so that the Fed would not be troubled about acting within them.

A likely qualifying consideration: when the US electorate is very divided and political tempers high, as nowadays, the Fed will be particularly wary about acting close to the election.

In 2016, the Republican convention is July 18-21, the Democratic assembly July 25-28. America votes 11/8/16.

In the current landscape (assume no emerging US economic weakness and no widespread fears of a global financial meltdown), these considerations and political dates make a Fed Funds increase in 2016 more likely than not in June (6/14-15 meeting) or July (7/26-27).

A rate hike is unlikely in the Fed’s September 20-21 meeting. Though the first formal presidential debate occurs after this (on 9/26/16), 9/20-21 is well after the conventions and only six weeks before Election Day. A rate boost is very unlikely in the Fed’s November 1-2 gathering. The December post-election Fed meeting (12/13-14/16) is a likely date, all else equal, for a Fed policy action.

Here’s a chronicle of Federal Funds rate shifts. It does not clearly unveil a bias against rate changes as the election approaches. The 2008 crisis situation of rate-cutting was exceptional.

https://www.newyorkfed.org/markets/statistics/dlyrates/fedrate.html

However, despite this murky history, the current Fed regime probably will do its best not to raise rates in the two or three months before the 2016 vote. This particular Fed crew is an especially cautious (and dovish) group. It repeatedly has underlined it will move only very gradually to normalize policy. The heated US political universe this year, which very likely will remain so, probably will encourage their reluctance to raise rates as the election approaches.

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US Election Year Politics and Federal Reserve Rate Moves (5-22-16)

AMERICA: A HOUSE DIVIDED © Leo Haviland December 7, 2015

Before Abraham Lincoln became President and the outbreak of the American Civil War, he stressed regarding the slavery issue: “A house divided against itself cannot stand.” (Speech, “A House Divided”; Springfield, Illinois, June 16, 1858). He added: “I do not expect the house to fall—but I do expect it will cease to be divided.” Lincoln’s “house divided” metaphor traces back to the Bible. Jesus warned (Matthew 12:25; see also Mark 3:24-25): “Every kingdom divided against itself is brought to desolation; and every city or house divided against itself shall not stand.”

CONCLUSION AND OVERVIEW

From colonial times to the present, America always has had political divisions. History reveals that such differences- whether based on political ideology, economic viewpoints and interests, religious or other social opinions, “human nature”, overseas events, or other phenomena- can vary in substance and intensity. Although sharing of the American Dream culture helps to unite Americans, diverse visions regarding the Dream’s content exist, evolve, and are debated. Political wars, battles, fights, feuds, quarrels, squabbles, and disagreements never disappear entirely even though that rhetoric can differ in quantity, severity, scope, and quality.

Doomsday or other terribly bleak scenarios have appeared within American political discussions. However, nowadays “civilization as we know it” is not ending (even if it arguably has deteriorated), economic growth continues (though often fitfully), and so-called “core values” expressed by the American Dream remain (in various fashions) shared. America nowadays obviously is not as divided as it was during its long and bloody Civil War. The American scene did not banish physical violence as part of the process of resolving notable national or regional disagreements. Recall wars with Indians, labor (union) fights, and the civil rights movement. Yet significant internal national conflicts, especially after the Second World War, increasingly have been resolved within a comparatively peaceful political process, including the passage and interpretation of laws.

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However, a brief survey of the United States political realm from the national perspective nowadays suggests that America’s political house over the past several years probably has become more divided than usual. It probably will remain so for quite some time, and at least through the 2016 election campaign.

Political fights often can express (reflect) economic phenomena, including diverging doctrines and competing practical interests. What does the recent picture display? Political battles and resultant significant legislative gridlock within the American political realm has coincided with sluggish real GDP growth, weak average household income, an elevated poverty level, and increasing economic inequality.

Is increasing political conflict confined to the American domain? Political (as well as economic, social, and religious) divisions of course exist around the globe. Reasons for fights over power within the United States are not necessarily the same as those inspiring political conflicts elsewhere. And cultural analysis must beware of overgeneralization and oversimplification. The world as a whole is not completely falling to pieces. Yet it nevertheless seems that political hostilities within and between many nations (and between groups with different views and aims) around the globe, as in the US, have increased in the past few years. This trend, especially if it worsens, arguably endangers international (and American) economic expansion. Severe and heated political divisions not only often reflect economic problems, but also can create or magnify economic (and political) risks. World history (for example, after the First World War) reveals that substantial and widespread economic distress and fears can greatly assist the rise of rather extreme political (economic) views, whether far left, far right, ultranationalist, fringe, and so forth.

In recent years, in the United States and many other advanced nations, insufficient economic output, political divisions, or both increasingly have encouraged faith in and reliance on central banks to spark and sustain economic growth.

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America- a House Divided (12-7-15)