Michelle ThompsonUncertainty surrounding the U.S. economy may soon lessen. For months, consumer and business decisions have been delayed due to the upcoming presidential election, with many waiting to see who will take office before making major purchases or investments. Both Vice President Kamala Harris and former President Donald Trump propose economic plans aimed at affordability and growth, but their strategies differ significantly, affecting taxes and inflation in unique ways. However, with polls showing a close race, it might take time to identify the next president, leaving some uncertainty about future economic policy.
One source of imminent clarity will be the Federal Reserve’s upcoming interest rate decision, expected Thursday. In September, the Fed reduced borrowing rates for the first time in over four years and hinted at further cuts. Since then, new economic data have emerged, which will inform the Fed’s actions. Chair Jerome Powell’s statements post-meeting may offer insights into whether the expected rate-cutting path remains unchanged.
While not all economic questions will be resolved this week, the cautious stance of American consumers and businesses may begin to shift.
A choice between two distinct economic paths
The upcoming U.S. election is influencing economic decisions, with many consumers and businesses delaying significant actions, such as business expansion or home purchases, until after the results are clear. The candidates’ contrasting economic policies could shape the economy in distinct ways.
Trump’s economic plan involves high tariffs and large-scale deportations, likely to drive up business costs and accelerate inflation, as U.S. importers bear the tariff expenses. In contrast, Harris proposes incremental measures like reviving the expired child tax credit extension and increasing deductions for startup costs. While both agendas aim to provide relief to households and businesses, a Wall Street Journal survey of economists found that 68% expect prices to rise faster under Trump’s plan.
Business investment has also been impacted. A survey of chief financial officers by two regional Federal Reserve banks and Duke University found that nearly a third of respondents had postponed or scaled back investments due to election-related uncertainty. Similarly, consumer hesitation is reflected in the housing market, with home sales slowing as buyers await election results. Lawrence Yun, chief economist for the National Association of Realtors, suggests that the market could rebound post-election, with more buyers potentially re-entering once there’s clarity on the country’s economic direction.
Anticipating further rate cuts from the Fed
The global community is closely monitoring the potential decline of U.S. interest rates, which appears likely at this time.
Recent employment data released Friday indicates that the job market is cooling in a controlled manner, without drastic declines when excluding temporary disruptions from recent labor strikes and natural disasters.
Federal Reserve officials have indicated in recent speeches their commitment to maintaining a stable labor market, noting that current interest rates remain excessively high. Given that the job market has not rebounded strongly after unexpectedly positive job growth figures for September, another rate cut is anticipated this week. Investors are nearly certain that the Fed will implement a quarter-point reduction, as indicated by futures trading.
Lower interest rates could encourage home buyers to re-enter the market and help businesses proceed with plans that account for reduced borrowing costs. The focus now is on waiting for these lower rates to materialize.
