Yahoo Finance 3 Possible Impacts on Interest Rates With Biden Now Out of the Presidential Race
The pressure for President Joe Biden to step down from the presidential race appears to have had its desired effect. On July 21, Biden shared a letter on social media announcing that he would step out of the 2024 presidential race, calling it “the greatest honor of my life to serve as your President.”
Donors — and megadonors — have been balking at giving more funds, with The New York Times reporting that some of them “have told the largest pro-Biden super PAC, Future Forward, that pledges worth roughly $90 million are now on hold if President Biden remains atop the ticket, according to two people who have been briefed on the conversations.”
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Biden has faced mounting pressure in recent days from his own camp, with 37 House Democrats and at least four Senate Democrats publicly calling for him to step down. Meanwhile, high-level party leaders, such as former Speaker Nancy Pelosi (D-Calif.), Senate Majority Leader Chuck Schumer (D-N.Y.) and House Minority Leader Hakeem Jeffries (D-N.Y.), have had private conversation with the President, according to The Hill.
Now that Biden has stepped down, it could potentially have some impact on financial markets and decisions, such as the direction of interest rates, although it’s hard to find an element of comparison for these situations.
Against this backdrop, the next Federal Reserve Federal Open Market Committee (FOMC) meeting will occur from July 30 through July 31 and as of July 19, odds are at 95.3% that the Fed won’t cut rates, according to the CME FedWatch Tool. Experts argue that the first cut will occur at the September meeting, as GOBankingRates previously reported, with the CME FedWatch Tool putting the odds at 91.7%.
Yet, as of now, it is unclear whether Biden’s exit may sway officials in their future decisions.
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Interest Rates Would Remain Stable for Now
Some experts, such as Michael Collins, CFA, founder and CEO of WinCap Financial, said Biden dropping out is unlikely to have much of an impact on interest rates.
“Any changes in interest rates are primarily driven by economic factors and decisions made by the Federal Reserve, rather than individual political candidates,” Collins said.
He explained, however, that whomever the Democrats choose to replace Biden could have an impact on interest rates, depending on their proposed policies and how the market responds to them.
“However, it is important to note that the Fed’s decisions and overall economic conditions will still have a major influence on interest rates,” Collins said, explaining that the Fed is an independent institution, and its policies are not directly affected by political changes such as a new candidate entering the race.
As the Fed’s main goal is to promote price stability and support economic growth, any decisions made by a new candidate would need to align with these objectives, he added.
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A Potential Impact Longer-Term
Now, while Biden’s exit might not affect rates short-term, this could change, depending on who replaces him, several experts said.
For instance, if the replacement candidate is known to favor government spending — which, these days, is likely to require monetary policy support — rates could indeed be affected sooner rather than later, said Peter Earle, senior economist at American Institute for Economic Research.
“The incumbent FOMC won’t change its policy stance in response to a new candidate, but different replacements for Biden on the Democratic ticket [will] undoubtedly change the trajectory of the Fed policy — if they win in November,” Earle said.
No Changes at All
Some experts argue that Biden’s exit will have no impact on the Fed’s decision to cut or not cut rates at its September meeting.
“My guess is the Fed would get a bit of grief from some corners of the U.S. political universe, cutting that close to the election, regardless of who sits atop the Democratic ticket — even if a rate cut wouldn’t impact [or] benefit the economy until after election,” said Timothy Holland, CFA and chief investment officer of Orion.
As the Fed would be aware of that dynamic heading into the September meeting, it would be prepared to deal with it and would cut or not cut rates based on its read of the economy, independent of the political backdrop, Holland said.
Chris Motola, special projects editor and financial analyst at NationalBusinessCapital.com, echoed the sentiment that other factors will be at play.
“It’s unlikely to have much of an immediate impact,” he said. “Rising unemployment and/or inflation will be the main decisive factors here.”
And in terms of what could happen to Fed Chair Jerome Powell, whose term is up in 2026, Holland said that while the President can dismiss the Fed Chair, that can only be done for cause.
“Regardless of the presidential candidates and the outcome of the presidential election, we would expect Chair Powell to serve out his full term,” Holland said.
Editor’s note on election coverage: GOBankingRates is nonpartisan and strives to cover all aspects of the economy objectively and present balanced reports on politically focused finance stories. You can find more coverage of this topic on GOBankingRates.com.
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This article originally appeared on GOBankingRates.com: 3 Possible Impacts on Interest Rates With Biden Now Out of the Presidential Race
