Ankara: The Fed’s decision to continue its rate cut cycle may depend on the results of Tuesday’s US presidential elections, and experts believe that the bank may continue rate cuts in case of a victory by Vice President Kamala Harris, but the cycle may be at risk if former President Donald Trump is the winner.
According to Anadolu Agency, Felix Schmidt, a senior economist at German private bank Berenberg, mentioned that the Federal Reserve could possibly settle for a 25-basis point rate cut on Thursday, two days after the elections, due to the well-performing US economy in the face of tight monetary policy and stubborn inflation. Schmidt emphasized that whether the rate cuts will continue may largely depend on the election outcome, highlighting that a Trump win could initially stimulate the economy through tax cuts, though additional tariffs and stricter immigration policies might lead to higher inflation. This scenario could potentially force the Fed to end its rate-cutting cycle sooner than expected.
Phil
ip Marey, senior US strategist at Netherlands-based Rabobank, stated that the Fed is likely to issue 25-basis point rate cuts at its November, December, and January meetings. Marey pointed out that beyond January, their Fed forecasts are contingent upon the presidential election results. He mentioned that if Trump becomes president, which is currently their baseline scenario, inflation is expected to rebound once a universal tariff is imposed, necessitating a pause in the cutting cycle. Conversely, a Harris victory would likely result in less inflation, allowing the Fed to continue its rate-cutting cycle.
James Knightley, chief international economist at Dutch ING banking firm, noted that the Fed is likely to cut its interest rate by 25 basis points in November, irrespective of the election outcome, as inflation concerns have diminished, and the bank is concentrating on the cooling job market. Knightley highlighted that a 25-basis point cut is broadly anticipated in the money markets, and Fed Chairman Jerome
Powell’s statements on the current economic environment and the influence of the next president will be of significant importance.
Knightley further elaborated that a Trump victory is expected to ensure a lower tax environment, boosting sentiment and spending in the short term. However, he cautioned that promised tariffs, immigration controls, and higher borrowing costs could become increasing challenges throughout Trump’s presidential term. He suggested that the Fed funds rate might reach 3.5% by the summer if Trump becomes president. In contrast, under a Harris presidency, the Fed might cut to 3% in the second half of 2025.