The Fed hikes rates if Clinton wins, cuts if Trump prevails, says Citi's Buiter

Trade wars ahead for US: Economist
Trade wars ahead for US: Economist

The Federal Reserve is likely to abandon its efforts to guide interest rates higher and instead would pare them back if Donald Trump is elected president, Citigroup Chief Economist Willem Buiter said Friday.

"Our current expectation is that we will get one rate increase this year. I would make that contingent on who wins the election myself," Buiter told CNBC's "Worldwide Exchange."

"It is my personal view that we only get a rate increase — a necessary condition is that Mrs. Clinton is the next president. My view, if Mr. Trump is the next president, the next move by the Fed will be a rate cut," he said.

A Trump presidency would force the Fed to anticipate "the high risk and possibly the reality" of a trade conflict, as well as the "massive, adverse supply shock" to the labor market caused by the Republican nominee's proposed immigration policies, Buiter said.

Trump has said he will deport millions of Mexican immigrants and impose a ban on Muslims entering the United States.

The generalized uncertainty about Trump's policies would also hit capital spending as businesses sit on their hands, Buiter added.

Janet Yellen
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The Fed has not raised interest rates since an initial quarter-point hike from nearly zero in December.

To be sure, Buiter said both candidates are being foolish by embracing anti-free-trade rhetoric. While common and emblematic of a new populist, anti-globalization stance held throughout the world, the campaign talk is "very dangerous and indeed irresponsible," he said.

"With President Trump, there is the near certainty of trade wars, and with President Clinton there's the high risk of trade wars, and neither would be good for the U.S. or for the global economy," he said.

Trump has said he would renegotiate America's trade deals, and he threatened crippling tariffs against China. Hillary Clinton, who supported the Trans-Pacific Partnership as secretary of state under President Barack Obama, now says she opposes the trade deal among 12 Pacific Rim nations.

Buiter, however, acknowledged that Obama the candidate was more anti-trade in 2008 than Obama the president turned out to be. He said there is hope that once the "bluster and nonsense" of the campaign is over, either candidate would settle on less destructive policies. But he cautioned that anti-globalization sentiment is on the rise in the United States and overseas.

Trump vs. Clinton on trade
Trump vs. Clinton on trade

Clinton reiterated her opposition to the Trans-Pacific Partnership while outlining her economic plan on Thursday, saying she would end trade deals that kill American jobs if elected president.

Democrat Morris Reid, a former aide to the commerce secretary under President Bill Clinton, on Friday told CNBC's "Squawk on the Street" it's one thing to run as a candidate and another to run a government. He said he thinks either candidate would tone down the bombastic language and acknowledge that the path to job growth at home is expanding markets abroad.

Further, the Trans-Pacific Partnership has the support of many congressional Republicans, and therefore represents an opportunity for Clinton to compromise with the GOP in order to secure backing for her other economic initiatives.

"The reality is when you get in office, when you have to work with different branches of government, it is just not a totalitarian system here," he said.

Clinton could also gain traction with Republicans disillusioned with Trump by signaling that she would work with House Speaker Paul Ryan to reform the U.S. corporate tax system, he added.

Terry Sullivan, Firehouse Strategies partner and former campaign manager to Sen. Marco Rubio, also said corporate tax policy reform is a "huge" opportunity for Clinton.

"There are lot of Republicans, especially fiscal conservatives, who are scared to death of Donald Trump, and they're also scared to death of Hillary Clinton. And so she has an opening to seem less unstable and win over some key Republican votes," particularly college-educated, upper-income white voters unlikely to vote Trump, who might sit out the election, he told "Squawk on the Street."

The problem, he added, is that Clinton has consistently leaned left of the political center.