Trump win may induce Fed not to raise rate

By Sanam Mirchandani  — November 7, 2016

The Economic Times

The isolationist policies proposed by the Republican Presidential candidate Donald Trump in the US would have adverse effects on emerging markets, said Joseph Stiglitz, recipient of the Nobel Prize for Economics and professor at Columbia University.

In a conference call, on Friday, organised by Credit Suisse to discuss the outlook and expectations surrounding the US elections, Stiglitz said the likely economic turmoil in the event of Trump winning, would induce the US Federal Reserve not to raise rates, the probability of which happening in December, for now, is high. Edited excerpts:

On probable winner:

There is a bit of a possibility that the Utah will vote for an independent candidate and the Electoral College will be split with nobody having a majority, in which case it would be drawn to the House of Representatives. There is a small probability that next Wednesday we won’t know the answer. But apart from that, it will be Hillary or Trump and the outcome obviously has very deep implications for the global economy.

On Trump win impact on emerging markets:

It is going to make a great deal of difference, who wins. Trump basically has a nativist view and Hillary is in the tradition of majority of Americans being integrated in the global economy. There is nothing that symbolises the difference more than the fact that Trump wants to build a wall between Mexico and the US. I don’t think he would be able to do those things. His kind of isolationism will obviously have an adverse effect on emerging markets (EMs). They benefitted a lot from expansion of global trade. There are two groups that have done very well by globalisation in the last quarter century -the upper 1% and the global middle class, which is really the middle class in EMs. Two groups that have done very badly include, the people at the very bottom and the middle class in the US and Europe. They have seen their income stagnate. The way to solve that problem is not at the expense of emerging markets but to realise that if the whole world grows, we can all benefit. Trump frames it as very much a zero sum framework. He thinks we have lost because of what they gained. The reason that so many Americans have not done well is not as much trade as it is advances in technology. The real problem is that we need to help workers shift from old industries to new, help restructure the economy, and invest in people, infrastructure and technology.

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