On election day, Fed official urges U.S. fiscal investments

presidential election at Public School P.S. 56 in the Manhattan borough of New York, USA

By Jonathan Spicer

NEW YORK (Reuters) – U.S. lawmakers should take advantage of low interest rates by making infrastructure investments and encouraging innovations that boost productivity, a Federal Reserve policymaker said on Tuesday as Americans voted in a presidential election.

Charles Evans, head of the Chicago Fed, waded into the fiscal policy debate just as polls opened. An outspoken dove at the central bank, he said his prediction of 1.75 to 2 percent future economic growth was “informed by some assessment of what policies we are likely to entertain” out of Washington.

The Fed, which is expected to raise rates before year end, has occasionally emerged as an issue in the divisive campaign between front runners Hillary Clinton and Donald Trump. Trump, a Republican, said Fed Chair Janet Yellen was keeping rates low to boost President Barack Obama, a Democrat.

The Fed typically avoids prescribing fiscal policies, though its members have been more strident as their plans for a more aggressive policy tightening fizzled in the face of sub-par growth this year.

“Fiscal policy, if it were more stimulative and if it could be directed into more socially productive uses (like) infrastructure investments that strike me as something we need to do anyway, why not do it when interest rates are lower,” Evans said at a Council on Foreign Relations breakfast.

“That would end up probably increasing real rates too and that would help all of us out.”

Clinton has pledged to unveil a plan to rebuild U.S. infrastructure during her first 100 days, saying this would create new jobs. Trump has proposed increasing spending on the U.S. military and infrastructure but says he would reduce spending on other categories by 1 percent each year.

“There is a real risk if we focus too much on the debt,” Evans said, adding that fiscal policies “might incent certain types of investments or innovations.”

“If you’re restricting labor input so that we’re not going to get growth … it’s just simple arithmetic that’s going to be limiting to what our possibilities are,” he added.

Turning to the Fed’s 2-percent inflation mandate, Evans noted a preferred price measure is now up to 1.7 percent.

“We’re close, we’re getting there, and if I had even more confidence that we were going to get to 2 percent then I’d feel better about monetary policy normalization,” he said.

But there remain “reasons to be nervous about inflation,” including low expectations and the tendency of prices to be “inertial” after years below target, he said.

(Reporting by Jonathan Spicer; Editing by Chizu Nomiyama)

Wall St stumbles as FBI to review more Clinton emails

Traders work on the floor of the New York Stock Exchange (NYSE) shortly after the opening bell in New York

By Chuck Mikolajczak

NEW YORK (Reuters) – U.S. stocks erased early gains and turned negative on Friday after the head of the FBI said it will review more emails related to Democratic presidential candidate Hillary Clinton’s private email use.

Each of the three major indexes on Wall Street fell to session lows after FBI Director James Comey said in a letter to several congressional Republicans that the agency had learned of the existence of emails that appeared to be pertinent to its investigation. The election is scheduled to take place in 11 days, on Nov. 8.

“The market turned south the minute the headline hit the tape that the FBI is all of a sudden looking at (Hillary Clinton’s) emails again,” said Ken Polcari, Director of the NYSE floor division at O’Neil Securities in New York.

“The fact they are looking again just raises the prospect that once again they might find something, so the market turned south because it is expecting a Clinton win.”

Wall Street had been higher for most of the session after economic data showed the U.S. economy grew 2.9 percent in the third quarter, its fastest pace in two years, and upbeat earnings from Google parent company Alphabet Inc.

Alphabet shares were up 0.6 percent at $821.85.

While the report supports the case for an interest rate hike, the Federal Reserve is unlikely to make a move at its meeting next week, as it falls just days ahead of the U.S. presidential election.

The market is largely expecting the central bank to hike rates in December, with the odds of a rate increase that month  at 73.6 percent, according to the CME Group’s FedWatch tool.

Investors also digested the latest wave of earnings reports with the hope the latest quarter snaps a year-long earnings recession.

Nearly 73 percent of the S&P 500 companies that reported have topped Wall Street expectations, with growth for the quarter now expected to be 3 percent, according to Thomson Reuters I/B/E/S. The quarter had been expected to show a decline of 0.5 percent at the start of October.

On the negative side, Amazon.com was set for its worst day in nearly nine months, falling 4.8 percent to $778.74 after the online retailer warned that heavy investments in the crucial holiday quarter would hurt profits. The stock was the top drag on the S&P and the Nasdaq.

The Dow Jones industrial average <.DJI> fell 37.49 points, or 0.21 percent, to 18,132.19, the S&P 500 lost 9.81 points, or 0.46 percent, to 2,123.23 and the Nasdaq Composite dropped 29.05 points, or 0.56 percent, to 5,186.93.

Each of the major indexes were poised to post a decline for the week.

Amgen plunged 10.1 percent to $144.30 after the world’s largest biotechnology company’s sales for its flagship drug disappointed investors and analysts.

Declining issues outnumbered advancing ones on the NYSE by a 1.65-to-1 ratio; on Nasdaq, a 1.37-to-1 ratio favored decliners.

The S&P 500 posted 10 new 52-week highs and 9 new lows; the Nasdaq Composite recorded 42 new highs and 112 new lows.

(Reporting by Chuck Mikolajczak; Editing by Nick Zieminski)