When Donald Trump won the election in November, the stock market stopped a three-month slide and started what has been named the Trump Boom.
Before the election the DJIA was at 17,883 and now is well over 20,000 for the first time in history. There is a sense of optimism for business owners and entrepreneurs, but it might be short lived.
Janet Yellen is the Chief of the Board of Governors at the Federal Reserve and she has the power to ruin the Trump Boom. She spoke to Congress on Tuesday to announce their upcoming plans.
As many bond and stock traders expected, Yellen confirmed that they are looking at raising interest rates in March and moving forward. Some were expecting the bad news. Market Watch published an article before the meeting with Congress expecting a “St. Valentine’s Day Massacre” for bond traders.
The news broke and the markets instantly reacted by trading down despite three consecutive days of growth.
When Obama was in office, the FED kept the interest rates at almost zero for seven years to benefit the struggling economy. With interest rates so low and for so long, all economists agreed that bringing them back up was going to be difficult, but they waited.
The first increase was in December of 2015 and it facilitated the worst start for the stock market in the history of the DJIA. The FED only instituted a .25% increase. Only in December of 2016 did the rates increase again, but a small .25% bump.
Janet Yellen spoke on Tuesday to Congress and said that waiting too long would be “unwise”. After almost eight years of moving the interest rates just .50%, apparently now it is unwise to wait.
The FED chair will not be able to be replaced by Trump until at least 2018 and there isn’t much the administration can do to stop Yellen.
Yellen and the FED were very friendly to Obama during his time as president. By keeping interest rates so low and printing cash to make the economy look stronger than it really was, it pushed a much larger problem down the road. Fixing it will be rough, but now the FED has the ability to make Trump’s economy stumble out of the gates.
With the interest rate sitting at .75% now, if the FED decides to rapidly raise the interest rates then the market is likely to respond negatively. Depending on how fast they raise rates, they could cause the markets to drop significantly and end the Trump Boom.
Many people voted for Trump because they were not happy with Obama’s economy and thought that the businessman might be able to make things better. Trump can only do so much if the FED decides to quickly raise rates and tank the economy. And if the economy is worse in 2020 than it was in 2016, there is little likelihood of another Trump victory.
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