Political Summer Slugfest

The presidential campaign has brought about the suggestion of reforming existing regulations affecting the banking and financial services industry.
Key election issues and how they may affect the economy include: NAFTA, immigration, terrorism, and banking regulations such as Glass-Steagall and Dodd-Frank. Some candidates argue for the repeal of Dodd-Frank, regulations put in place during the current administration to regulate banking activity. The problem has been that the costs of the new regulations have inhibited smaller banks and credit unions.
 
Some candidates lobbied to bring back legislation known as Glass-Steagall, put in place during the depression in order to prevent banks from combining financial services, investment banking, and loans simultaneously.  The impact on the economy and market in general, and the financial services industry in particular, is yet to be determined with elections uncertain.
 
Economic growth, measured as GDP, was reported by the U.S. Department of Commerce to have increased at an annual rate of 1.2 % in the second quarter of 2016, well below analysts’ expectations of 2.5%. The dismal GDP report was accompanied by a drop in oil prices of over 15% in July and a record low for the 10-year Treasury yield hitting 1.37%.  Friday’s jobs number was more upbeat with nonfarm payrolls increasing by 287,000 – a number greater than expected though job gains have averaged just 147,000 over the past three months.  
 
Upcoming economic statistics during this tepid recovery will have an influence on the “data dependent” Federal Reserve in determining future rate hikes.  Rates in Europe and Japan remain in negative territory due to the uncertainty of growth within the EU and the expected derogatory effects of Brexit on global business transactions.
 
Fed members decided to leave interest rates unchanged during their July meeting, stating that it was prudent to wait for more data following the consequences of Britain leaving the EU. We continue to believe that a rate increase by the Fed before the end of 2016 would likely be premature – particularly with inflation in check and considering the recent decline in oil prices. 
 

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