How the 2024 elections may affect interest rates

As the 2024 election approaches, many voters are wondering how different outcomes will affect them financially. An enormous query is how the final result of the presidential election might affect interest rates.

In July, the Federal Reserve decided to maintain the federal funds rate unchanged 5.25% to five.50% After increasing it 11 times between March 2022 and July 2023. The high federal funds rate increases the cost of borrowing for businesses and consumers.

The sitting president has no direct influence on interest rates, but can influence them not directly through his actions and policies. Let’s take a look at how each candidate’s policies may impact their financial situation in the future.

How does the president influence interest rates?

The Federal Reserve goals to take care of inflation at around 2%and it does this by raising or lowering interest rates. When inflation falls too low, the Fed lowers interest rates to stimulate the economy.

Similarly, if inflation gets too high, the Fed raises interest rates to make it harder for banks to lend money to each other. When interest rates are high, business and consumer spending tends to slow, hopefully at the same time reducing inflation.

The Federal Open Market Committee (FOMC) sets the federal funds rate, or goal range for interest rates. However, there are several ways the President can influence interest rates:

• Fed chair removal: According to Federal Reserve Actthe president can dismiss the Fed chairman “for cause.” Some lawyers have dismissed this as an abuse moderately than a political difference, but the bill is ambiguous at best.

• Nominating members: The president can nominate the chairman of the Federal Reserve and appoint members of the Board of Governors. However, each term lasts 14 years and the Senate must approve each nomination, so the President’s powers are still quite limited.

• Expressing concerns: The president can disagree with Federal Reserve decisions and express them publicly. However, they can’t prevent the Federal Reserve from raising interest rates.

It must also be noted that there are 12 federal regional banks throughout the country. The president has no influence on who runs these banks.

Election results that would affect interest rates

The President’s policies and actions can not directly influence the Federal Reserve’s decision to lift or lower interest rates. There are two major candidates in the upcoming 2024 election – let’s take a look at how a win for either side could impact interest rates.

Kamala Harris wins:

When President Biden was running for re-election, the general consensus was that Biden would find yourself winning almost unchanged to interest rates. However, in July, Biden withdrew from the 2024 race, and Kamala Harris is now the Democratic presidential nominee.

It is difficult to predict how Harris’ presidency will affect interest rates, especially since she has not fully outlined her economic policy. Harris insisted tax reduction on lower- and middle-class families and promised to repeal Trump’s tax cuts if he won the White House. Like Biden, Harris supports investments in green energy and infrastructure.

As a senator, Harris voted against confirming Jerome Powell as Federal Reserve chairman in 2018. Some speculate that she is unlikely to reappoint him after his term ends.

Former President Trump wins:

If Donald Trump is elected in November, he’ll likely extend tax cuts through at least 2027. His policies favor tax cuts and deregulation, which profit businesses and could increase demand for business loans. But there is speculation that his tax-cutting plan could do just that increase inflationcausing the Federal Reserve to lift interest rates to combat inflation.

There has been significant tension between him and Federal Reserve Chairman Jerome Powell during Trump’s term. Many people wondered whether Trump would do it fire Chairman Powell if granted for a second term. Chairman Powell’s term ends in 2026, and the former president has stated that while he’ll allow Powell end his termhe won’t appoint him again.

The Federal Reserve has already signaled it may do so rate cuts in September. However, if inflation becomes a concern or starts to rise again, the Fed could maintain or even raise interest rates.

How to organize for election season

Election periods may be stressful as many people wonder how the final result will affect the economy and their livelihoods. Fortunately, data shows that the market often performs well in election years.

Even if the election result causes some volatility, the impact will likely be short-lived. The fundamental drivers of the economy, corresponding to inflation and Federal Reserve policy, are prone to have a greater impact on interest rates than the election itself.

For example, JP Morgan found that during the 2020 elections, the end of restrictions had a greater impact on the market than the views of any of the presidential candidates. Similarly, in 2008, the major factor driving the economy, not the elections, was the financial crisis.

Inflation is falling and unemployment is at an all-time low, so we’ll likely see a potential rate cut or two in 2024, no matter who becomes president. But regardless of what happens, there is never a perfect time to access capital. If you have a probability to develop your small business, don’t let the fear of decisions pass you by.