The Potential Economic Impact of Upcoming Elections in the U.S.

President-elect Donald Trump and Economic Prospects

With President-elect Donald Trump’s remarkable triumph in the 2024 Election, a series of changes are anticipated within U.S. economic policy. These alterations could potentially influence interest rates, market stability, and consumer confidence to a great extent.

The Economy Under the Trump Administration

The re-election of Trump brings speculation around the Federal Reserve’s strategy, borrowing costs, and inflation. Beata Caranci, Chief Economist for TD Bank, delves into the nuances of what this new term might entail for various economic sectors.

Interest Rates and Market Stability

November’s meeting of the Federal Open Market Committee (FOMC) underscored a crucial stance. According to Beata, there is an evident commitment towards ongoing reductions in interest rates. Nevertheless, FOMC’s tone lacked clarity on the pace and size of future cuts. Throughout the past two months, the Federal Reserve has implemented 100 basis points in reductions, with the current policy rate standing at 4.75%. Most market analysts now predict rates will finish 2025 around 3.75% versus prior anticipations of 2.75%.

The Fed remains a stabilizing force. However, Trump’s direct influence on them will necessitate patience, as current Chair Jerome Powell is committed to maintaining his position until early 2026.

Borrowing Costs: Short and Long-Term Effects

The implications of interest rates in borrowing differ significantly. Fixed-rate loans, like 30-year mortgages, respond primarily to changes in long-term yields. On the other hand, variable-rate loans tethered to the prime rate are more immediately affected by the Fed’s adjustments. Recent increases in the 10-year Treasury yield, about 60 basis points higher from a recent low, reflect market worries over inflation and long-term debt risks.

Nonetheless, borrowers might see temporary relief in floating rates as the Fed continues to cut policy rates. The road ahead could see these dynamics play a significant role in both short and long-term borrowing habits.

Consumer Spending: A Resilient Driver of Growth

Amidst inflationary pressures, consumer spending has proven a stalwart element of America’s economic endurance, particularly post-pandemic. Beata emphasizes the drive to maintain spending momentum, highlighting patterns seen in late 2024. Entering 2025, improved confidence could propel expenditures further. Combine that with potential tax relief under Trump’s leadership and consumer engagement remains likely robust, though inflation and rates will demand vigilance.

President-elect Trump’s Policy Agenda

Trump’s administration, galvanized by a strong public mandate, seems poised to enact policies centred on border security, tax reductions, and deregulation. Border security, tax reforms, and tariff enforcements, particularly on imports from countries like Canada and Mexico, anchor his plans. President-elect Trump’s trade strategies promise to uphold U.S. dominance, particularly against the backdrop of rising competition with China. As Beata notes, securing a technological and economic upper hand remains at the top of their international priorities.

Fiscal Responsibility Versus Economic Stimulation

Trump’s policies might invigorate several sectors, but they raise fundamental questions about financing. While the appetite for initiatives is known, the associated costs are not entirely clear. With potential tax cuts looming, the broader effects on federal deficits deserve attention. Close scrutiny from the bond market is inevitable as they evaluate the feasibility of Trump’s plans against burgeoning national debt concerns.

Conclusion

Financial landscapes brace for transformation as President-elect Trump’s strategies unfurl over the next few years. Though uncertainties persist, the economic story set to unfold under his administration promises to captivate markets and investors alike.

DISCLAIMER

TD Economics is a specialized department within TD Bank Group providing analysis on global economic trends. It offers insights into financial markets, labor metrics, real estate, and regional analyses. This article is intended purely for informational and educational uses and may not align with future developments. The opinions expressed are subject to change based on evolving market conditions. This content does not serve as investment advice, nor does it offer a solicitation to trade securities. For further reading, consider official publications by TD Economics and their related resources.

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