US economy gaining confidence despite election uncertainty

The US Federal Reserve (Fed) is keeping the door open for an interest rate increase later this year despite the uncertainty caused by the presidential election, Thesis Asset Management’s Ryan Paterson has said.
Paterson, a research analyst at Thesis, points out that as data showed domestic consumer spending was on the increase and both the manufacturing and services segments of the economy were in expansion mode, although the August Empire State manufacturing survey appeared to be a soft spot.
“Key employment indicators continue to show the labour market is moving in the right direction,” Paterson said.
“After a dismal May report, this news lifted the US stock market which continues to post impressive gains, reaching a new all-time high.”
However, with the US presidential election on the horizon Paterson believes we could see markets display volatility similar to that seen in the lead up to the EU referendum.
“Following Brexit, the next such event to create uncertainty is the US presidential election, where a (presumed) Clinton win would currently be deemed to pose a lot less risk than a Trump win.
“It is probable that markets will continue to be volatile in the build-up, especially as opinion polls move around.
“We will be paying close attention to the US bond market, as improving economic data has increased the chances of another US interest rate rise before the year is out.”
Paterson does note, however, that the market seems less convinced.
“While odds of a rate hike have moved forward, Fed funds futures still fall short of pricing a rate hike this year. Some economists suggest the presidential election, dovish central banks elsewhere and global headwinds may still hold the Fed back in the coming months.”
Nevertheless, Paterson does expect Fed Chair Janet Yellen to use this month’s Jackson Hole address as an opportunity to reiterate the probability of rate increases by year end.
 
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