As we approach the 2024 election, many voters are curious about how different outcomes will impact them financially. One major concern is how the result of the presidential election could influence interest rates.
In July, the Federal Reserve decided to maintain the federal funds rate at 5.25% to 5.50%, after raising it 11 times between March 2022 and July 2023. When the federal funds rate is high, borrowing costs increase for businesses and consumers.
While the sitting president doesn’t have a direct impact on interest rates, they can indirectly influence them through their policies and actions. Let’s explore how each candidate’s policies could shape the financial landscape moving forward.
How does the President impact interest rates?
The Federal Reserve aims to keep inflation around 2% by adjusting interest rates. When inflation is low, the Fed lowers rates to stimulate the economy. Conversely, they raise rates if inflation is too high to curb spending and reduce inflation.
While the Federal Reserve sets the federal funds rate, the President can influence interest rates in various ways:
- Removing the Fed chair: The President has the power to remove the Fed chair “for cause,” potentially affecting Fed policies.
- Nominating members: The President appoints the Federal Reserve Chair and members of the Board of Governors, influencing the long-term direction of monetary policy.
- Voicing concerns: The President can express disagreement with Federal Reserve decisions but cannot dictate interest rate changes.
It’s important to note that the President has no authority over the 12 Federal regional banks scattered throughout the country.
Election outcomes that could impact interest rates
The President’s policies indirectly shape Federal Reserve decisions on interest rates. With two major candidates in the 2024 election, let’s consider how a win for each might affect interest rates.
Kamala Harris wins:
With Kamala Harris as the Democratic nominee, her presidency could lead to changes in interest rates. Harris’s economic policies, such as lowering taxes for lower and middle-class families and investing in green energy, could impact interest rates.
In her past voting record, Harris opposed the confirmation of Jerome Powell as the Federal Reserve chair. This stance suggests a potential change in Fed leadership under a Harris administration.
Former President Trump wins:
A second term for Donald Trump could involve extending tax cuts and deregulation, stimulating business growth. However, his tax cut plans may cause inflation to rise, prompting the Fed to increase interest rates.
During Trump’s previous term, tensions surfaced between him and Federal Reserve Chairman Jerome Powell. The possibility of Powell not being reappointed under a Trump administration could impact future interest rate decisions.
The Federal Reserve’s recent indication of a potential rate cut in September highlights the uncertainty surrounding interest rates. If inflation rises, the Fed may maintain or raise rates to control economic conditions.
How to prepare for election season
Election periods are often marked by economic uncertainty, but historical data suggests that market performance remains positive during election years. Despite short-term volatility, fundamental factors like inflation and Federal Reserve policies are likely to have a more significant impact on interest rates.
Regardless of the election outcome, it’s crucial to seize business opportunities without being deterred by election-related fears. Keep an eye on economic indicators and be ready to adapt to changing market conditions.