With the U.S. election approaching, financial markets are preparing for possible economic impacts based on the outcome. In a recent interview, an analyst from J.P. Morgan Asset Management outlined projected scenarios for interest rates, fiscal policy, and Federal Reserve actions under potential victories by Kamala Harris or Donald Trump.
Trump Win: Higher Rates and Expansionary Fiscal Policy
The analyst expects that a Trump victory, especially with a Republican sweep, would lead to more expansionary fiscal policies. This could include increased government spending, larger deficits, and potentially renewed trade tensions. According to the analyst, “If you have a Republican sweep with a Trump victory, you will get much more expansionary fiscal policy, potentially a trade war, bigger deficits, and so higher interest rates.”
Kamala Harris Vs Donald Trump
Federal Reserve’s Position
If an administration moves toward expansionary fiscal policy, the Federal Reserve might shift to counterbalance by tightening its approach. The analyst explained, “If fiscal policy is going to be expansionary, we’re going to have to lean against that and slow off the easing,” suggesting that the Fed could adopt measures to curb inflationary pressures from increased stimulus.
Harris Win: A Gradual Economic Approach and Stable Fed Policy
On the other hand, the analyst envisions a more cautious economic path if Harris wins, particularly if this results in a divided government. This scenario would likely mean a continuation of a “soft landing” economic approach, with fewer drastic shifts. As the analyst noted, “If you have a divided government with, say, a Harris victory, then I think you have a continuation of this slow, extended soft landing economy, but kind of dull.”
Under this outlook, the Fed would likely stick to its current trajectory, adjusting rates only if necessary. “They’ll stick to their dot plot until the economy tells them not to,” the analyst suggested.
J.P. Morgan’s Rate Cut Forecast
Regardless of the election’s outcome, J.P. Morgan Asset Management expects a 25 basis point rate cut in November, indicating a cautious approach in the face of economic uncertainty.
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