by Global Chamber Member - Tempus-US
US$ Strength to be Tested with Change of the Guard
A strong economy and policy divergence meets Donald Trump
The economic reality of the U.S. looks much better than many expected. Although outlooks were downgraded throughout the past eight years, the Great Recession ended and the greenback solidified its status as the most trustworthy currency. Obama leaves the country in a healthier state than many predicted throughout his administration. With the aid of loose monetary policy from the Fed, unemployment fell to 5.0% and lower, reaching the “full employment” level. Manufacturers, often said to be under siege, found resurgence while services expanded. Banks used to be hesitant to reach into their reserves and lend, but Obama-backed policies allowed these institutions to flourish, even as they coped with strict, yet much needed, financial regulation under Dodd-Frank. The process of leaving a recession behind is painstaking, but the country is now increasing payrolls and jobless claims are at their lowest levels in four decades. One could even argue that pushing for insurance exchanges as the ACA (Affordable Care Act) was implemented, created new jobs and provided the previously uninsured an opportunity to spend on something other than high medical bills. Wage growth also experienced an uptick lately, but overall spending has been anemic. More importantly, higher educated workers represented a greater share of wage improvements, which increased inequality. That, of course, was unintended, but the technological advances of the last decade have changed the dynamics of the economy. Competition, deregulation, and subsidizing may be characteristic of the incoming administration, one that has pledged to revive business in areas with lack of prosperity, those with socio-economic deficiencies that demanded attention from the political class.
We believe the U.S. Dollar reached multi-year, if not record, highs against most of its peers based on merit and the ongoing disturbances of other regions in 2016. Although there is doubt in how the U.S. will handle new endeavors with such a supposedly drastic change in policymakers, we remain confident the economy can be steered competently. We cannot lose faith. In order for a fiat currency to work, participants in such a monetary system must maintain some level of faith in the markets. That also goes into more basic things like believing in the democratic institutions behind them. Hopefully, President Trump’s administrative assignments appreciate the value of stability and positive tone while the economy is on the right footing. We foresee volatility as countries around the world measure our reliability. Thus, we do not see the Fed incrementing its Federal Funds Rate more than once or twice. A calm and collected America can take leadership, but only if respect is bestowed upon ratified international trading agreements and authorities, even though major realignments may take place.
Author: John Doyle, Director of Markets
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