This higher inflation may result in a shallower rate cut trajectory from the Fed than anticipated by the market.
Currently, we expect the federal funds rate, the interest rate at which commercial banks lend to each other, to fall from 5 per cent now to 3.5 per cent by the end of next year. But this forecast is uncertain should Trump return to office.
MORE TARGETED PROPOSALS FROM HARRIS
In contrast, Democratic candidate Harris has so far painted her desired policies in broad strokes. In terms of trade policies, she is likely to continue the “small yard high fence” approach by the Biden administration, implementing more tariffs for specific industries with a less confrontational approach than that of Trump.
In terms of tax policies, she has proposed a hike in income tax for top income earners, higher tax for the top capital gains bracket, and higher taxes for corporations, with tax reductions reserved for strategic sectors and clean industries.
She wants to assist smaller businesses and poorer households tackle the higher costs of living. Broadly speaking, her proposed economic policies are more targeted and less extreme than Trump’s – and likely to have less of an inflationary impact on the US economy.
Unlike Trump’s suggestions for more presidential oversight on monetary policy decisions, Harris has supported the ongoing independence of the Fed. Harris has also not suggested any measures to unilaterally devalue the US dollar, a proposal that Trump has floated on several occasions as well.
