The Financial Implications of the 2024 Election: Interest Rates and Economic Outlook

As the 2024 election approaches, many voters are increasingly concerned about how the outcomes will impact their financial futures. One of the most pressing questions is how the presidential election results could influence interest rates. With the Federal Reserve’s recent decision to maintain the federal funds rate at a steady 5.25% to 5.50%, understanding the interplay between presidential policies and interest rates has never been more crucial.

Understanding the Role of the Federal Reserve

The Federal Reserve (the Fed) plays a pivotal role in managing the U.S. economy, primarily through its control of interest rates. The Fed aims to keep inflation around 2% and adjusts interest rates to stimulate or cool the economy as needed. When inflation is low, the Fed may lower interest rates to encourage borrowing and spending. Conversely, if inflation rises too high, the Fed may increase rates to curb spending and stabilize prices.

While the sitting president does not have direct control over interest rates, their policies and actions can indirectly influence the Fed’s decisions. The Federal Open Market Committee (FOMC) sets the federal funds rate, but the president can impact this through various means, such as appointing Fed governors and voicing public opinions about monetary policy.

How the President Influences Interest Rates

1. Appointment Power: The president has the authority to appoint the Federal Reserve Chair and nominate members of the Board of Governors. However, these appointments require Senate confirmation, and the terms last for 14 years, limiting the president’s immediate influence.

2. Public Discourse: A president can publicly express concerns about the Fed’s decisions, potentially swaying public opinion and influencing market expectations. However, they cannot directly dictate the Fed’s actions.

3. Removal of the Fed Chair: The president can remove the Fed chair "for cause," but the interpretation of "cause" is ambiguous and typically does not include policy disagreements.

4. Regional Banks: The president has no control over the 12 regional Federal Reserve banks, which operate independently within their jurisdictions.

Potential Election Outcomes and Their Impact on Interest Rates

As the election draws near, two major candidates are vying for the presidency: Kamala Harris and Donald Trump. Each candidate’s policies could lead to different outcomes for interest rates and the broader economy.

If Kamala Harris Wins

With President Biden stepping aside, Kamala Harris has emerged as the Democratic nominee. While her economic policies are still being defined, she has indicated a desire to lower taxes for lower and middle-class families and to repeal the Trump tax cuts. Harris also supports investments in green energy and infrastructure.

Her past opposition to Jerome Powell’s confirmation as Fed chair raises questions about whether she would reappoint him when his term ends. The uncertainty surrounding her economic agenda makes it challenging to predict how a Harris presidency would affect interest rates.

If Donald Trump Wins

Should Donald Trump reclaim the presidency, he is likely to extend tax cuts and continue his policies of deregulation, which could stimulate business growth and increase demand for loans. However, there are concerns that his tax cuts could drive inflation higher, prompting the Fed to raise interest rates to combat this inflationary pressure.

During his previous term, Trump had a contentious relationship with Jerome Powell, leading to speculation about whether he would seek to replace him if elected again. The Fed has already indicated a potential rate cut in September, but rising inflation could lead to a different course of action.

Preparing for Election Season

Election seasons can be fraught with uncertainty, particularly regarding their economic implications. However, historical data suggests that markets often perform well during election years. Even if election outcomes lead to short-term volatility, fundamental economic factors—such as inflation and Fed policies—are likely to have a more significant impact on interest rates than the election itself.

For instance, during the 2020 election, the market was more influenced by the ending of COVID-19 lockdowns than by the candidates’ policies. Similarly, the 2008 Financial Crisis overshadowed the election’s impact on the economy.

With inflation decreasing and unemployment at an all-time low, there is a strong possibility of rate cuts in 2024, regardless of the election’s outcome. Business owners should remain vigilant and not let election-related fears deter them from pursuing growth opportunities.

Conclusion

As the 2024 election approaches, understanding the potential implications for interest rates and the economy is essential for voters and business owners alike. While the president’s influence on interest rates is indirect, their policies can shape the economic landscape significantly. Regardless of who wins, the fundamental drivers of the economy will likely play a more critical role in determining interest rates than the election itself. Therefore, staying informed and prepared is key to navigating the financial landscape in the coming year.