The interest rate cuts by the U.S. Federal Reserve are dependent on the election results.

Experts have indicated that the continuation of the U.S. Federal Reserve's (Fed) interest rate cut cycle may depend on the results of the U.S. presidential elections, suggesting that if Kamala Harris is elected president, the Fed may continue its rate cuts, but if Donald Trump is elected, the interest rate cut cycle could be at risk.

MARKETS FOCUS ON RATE CUT EXPECTATIONS

Dr. Felix Schmidt, Senior Economist at Berenberg, stated in his assessment that the Fed may be willing to implement a 25 basis point cut on November 7, following the initial 50 basis point cut.

Schmidt expressed that the reason for this is the strong performance of the U.S. economy despite tight monetary policy and stubborn inflation, and he noted that whether interest rate cuts will continue in the coming months may largely depend on the outcome of the U.S. presidential elections.

He mentioned that if Donald Trump returns to the White House, tax cuts could initially stimulate the economy.

WHICH CANDIDATE WILL BENEFIT FROM TAX PROMISES?

Schmidt also pointed out that additional tariffs and stricter immigration policies could lead to higher inflation, which could likely force the Fed to end the interest rate cut cycle earlier.

Philip Marey, Senior U.S. Strategist at Rabobank, also expressed that the Fed could implement 25 basis point rate cuts at each of its meetings in November, December, and January.

Marey commented, "Beyond January, our Fed forecasts depend on the outcome of the presidential elections," adding that "if Trump becomes president, we may see a surge in inflation when he imposes global tariffs. This situation would mean that the Fed would need to pause its interest rate cut cycle."

In contrast, Marey noted that if Kamala Harris wins, there would be no global tariffs, making it likely to see slower inflation, which would make it more probable for the Fed to continue its interest rate cut cycle.

"POWELL'S COMMENTS ARE OF GREAT IMPORTANCE"

James Knightley, Chief International Economist at ING, predicted that the Fed would implement a 25 basis point rate cut at its November meeting, regardless of the election results.

He stated that inflation is less concerning and that the Fed is focusing more on the cooling job market, adding that the Bank could continue to lower interest rates towards neutral levels regardless of which candidate wins the U.S. presidential elections.

Although a 25 basis point rate cut is generally expected and priced in, Knightley emphasized that the comments of Fed Chairman Jerome Powell regarding how the current economic environment and the outlook for the next U.S. president will affect the situation will be of great importance.

Knightley noted that the Fed is aware of how its actions and comments could impact financial markets, which are currently experiencing quite volatile conditions, stating, "Markets seem to be increasingly confident in a Trump victory, as evidenced by the rise in stocks, the dollar, and bond yields in recent weeks. If Trump wins, these trends may continue."

IS A 100 BASIS POINT CUT POSSIBLE?

Knightley mentioned that the Fed could implement a total of 100 basis points in rate cuts this year. He stated, "We argue that Trump's victory would provide a lower tax environment in the short term, which would increase spending in companies and boost confidence in the business world." However, he pointed out that promised tariffs, immigration controls, and higher borrowing costs could increasingly become counteracting effects throughout the presidential term.

Knightley commented, "If Trump becomes president, we think the interest rate could decline to 3.5% by the summer, but under Harris's presidency, we could see the Fed lowering the interest rate to 3% in the second half of 2025."