Four more Rate hikes expected this year

On 16 December 2015, the Fed Chair Janet Yellen raised rates by 0.25 percent, the first increase in nine years. On the day of the rise, the Dow jumped more than 200 points to 17,700.

The Fed had been looking at four rates rises this year in 2016. If there is carnage on Wall Street, that will be quietly forgotten about. There are indications the single quarter point raise could even be reversed. Neither of Yellen’s predecessors, Alan Greenspan or Ben Bernanke, were willing to let the markets tank, and it is unlikely that Yellen will want to either if she can possibly avoid it

Low inflation in medical sector

For Federal Reserve Chair Janet Yellen, the current too-low inflation rate is not only “transitory,” it’s also “idiosyncratic.”

"There are various idiosyncratic factors that affect core inflation. But I personally don’t think we’re in a world where inflation is being determined in a different way than it has historically."

Janet Yellen's role in 2016 Presidential race

When the Federal Reserve, led by Chair Janet Yellen, raised interest rates recently for the first time in nearly a decade – ending seven years of rates essentially sitting at zero – economy-watchers divided into two camps. One believes it was high time for the Fed to start moving away from the exceedingly easy monetary policy that was a staple of the response to the Great Recession. The other says that the economy is still too weak, with wages too low and the labor market too slack, to risk any rate increase right now.

The dispute boils down to which should be of greater concern: the specter of easy money sparking inflation as the economy recovers or the threat of rate hikes choking growth. Through its manipulation of the federal funds rate (which is the rate at which banks lend to each other) and its other tools, the Fed expands or contracts the money supply in an effort to achieve its so-called "dual mandate" of full employment and low inflation. Raising rates too fast hurts credit, economic growth and wages. Waiting too long, however, risks letting inflation get out of control.

Having sided with those who said it was time to hike, the question now for Yellen and the rest of the central bank's board is what comes next. Its answer will not only determine the course of the U.S. economy, but could very well affect who steps into the Oval Office after President Barack Obama takes his leave.

How would Yellen and co. play a role in the 2016 race? Well, while American elections get treated as a battle over leadership skills and personality, a huge part of the outcome is governed by simple economic fundamentals: If the economy is improving, the incumbent party wins. If it's not, the other folks do.

So if the Fed has hit the brakes too soon and the recovery gets stifled, that'll benefit the Republicans. But if it's right in its analysis and conditions keep improving – thereby cementing President Barack Obama's reputation as a turnaround artist – the Democrats will likely reap the rewards.