Elections matter, especially when the choice offers distinct and unpredictable governing outcomes. This note mostly covers how the November contest in the United States has and will matter for the Federal Reserve. It has mattered already because we think the advantage of waiting until after the ballots were counted to move a little further in renormalizing monetary policy importantly influenced the decision of the Federal Open Market Committee (FOMC) not to act at its September meeting. It will matter in the future because an FOMC that waits in September because of the shadow of the election will surely take another pass at its November meeting, which is scheduled a week before the popular vote.
And the result of that vote will quickly determine the composition of the Federal Reserve Board and the likelihood Janet Yellen has a second term starting in February 2018. Despite some recent talk that she would resign early were Donald Trump to be elected, expect Yellen to be in office for at least a full four years. To think otherwise misunderstands the Fed’s history and its chairwoman’s determination.
To set all this up, we first turn to a prediction market to ask the important question, which is not who wins the presidency. The important question is who governs next year, which is about the executive and legislative branches.