Yahoo Finance I’m an Economist: Here Are My Predictions for Interest Rates If Trump Wins the Election
In the lead-up to the next U.S. presidential election, there’s a lot of speculation as to how a Donald Trump win would affect the economy. If you’re an investor or a potential homeowner or if you have any major financial decisions to make soon, you should understand how interest rates might be impacted by a second Trump administration.
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To understand more about where interest rates could go, GOBankingRates spoke to Aaron Cirksena, founder and CEO of MDRN Capital, as well as Dennis Shirshikov, adjunct professor of economics at CUNY and head of growth at Summer. Here are their predictions for interest rates if Trump wins the election.
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Lower Interest Rates Might Boost Economic Activity
Throughout his first term, Trump was vocal about his preference for lower interest rates, arguing that they’d get businesses investing and consumers splurging. Of course, the issue is that the president doesn’t actually set interest rates — that’s the Federal Reserve’s job. But the president’s agenda and his influence over the appointment of Federal Reserve officials has an effect.
“If former President Trump wins the election, we might see a push for lower interest rates to stimulate economic activity and growth,” Shirshikov said. “Trump’s administration previously pressured the Federal Reserve to keep rates low, and a similar approach could be expected, aiming to boost business investments and consumer spending.”
Depending on how hard Trump leans on the Fed and which monetary policy levers get pulled, you could potentially see rates drop. The ripple effect, meanwhile, could include cheaper mortgages as well as businesses borrowing and expanding, potentially leading to job creation.
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Tax Cuts Could Lead to Short-Term Economic Growth
During Trump’s previous term, his administration rolled out major tax cuts with the Tax Cuts and Jobs Act of 2017. This legislation mainly favored the wealthy and corporations in that it lowered the top individual tax rate and reduced the corporate tax rate.
“A Trump victory could result in further tax cuts, leading to short-term economic growth and increased consumer spending,” Shirshikov said. “However, the long-term impact on interest rates might depend on how these policies affect the federal deficit and inflation. The Federal Reserve might need to adjust rates to counteract any inflationary pressures resulting from increased government borrowing.”
In the short run, this stimulus could boost GDP growth and job creation, but the long-term implications of low taxes on interest rates are tricky.
“Trump’s previous term reflected significant tax cuts and deregulation, especially for businesses,” Cirksena said. “If he pursued similar policies, it might create economic growth and more business investments. This could create inflationary pressures, and the Federal Reserve might increase interest rates to balance inflation.”
If those tax cuts aren’t balanced out by reductions in government spending or an increase in economic growth, they could balloon the national debt. In that case, interest rates would climb — and fast.
Trade Policies May Create Volatile Interest Rates
“Trump’s presidency also reflected aggressive trade policies,” Cirksena said. “If he follows suit with this again, the cost of imports could increase, possible trade wars, high inflation could occur. The Fed again might raise interest rates to manage inflation.”
The trade policies of Trump’s previous term had ripple effects all through the global economy. If Trump wins a second term, those ripples could continue to influence interest rates.
“Trump’s administration is known for its aggressive trade policies, which could lead to market volatility,” Shirshikov said. “Uncertainty in international trade relations might cause fluctuations in interest rates as the Federal Reserve reacts to economic instability. Businesses and consumers might face an unpredictable interest rate environment, impacting long-term financial planning.”
For instance, if tariffs make foreign goods more expensive, inflation could start heating up and the Fed would probably have to raise rates to keep inflation in check.
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This article originally appeared on GOBankingRates.com: I’m an Economist: Here Are My Predictions for Interest Rates If Trump Wins the Election
