Summarizing our US election scenarios

During the next presidential term, the economy will receive a net boost from federal policymaking, and inflation will come in stronger, leading to a more cautious easing cycle by the Federal Reserve. This is the takeaway no matter the president and the political balance of power in Congress. It’s only the degree to which GDP and inflation are higher under the next president that differs depending on the political configuration.

What you will learn:

• Beyond the next presidential term, meaningful differences open up across our election scenarios. GDP is lower and inflation stronger across the Trump presidency scenarios due to lower immigration and higher tariffs. In the Biden presidency and divided government scenario, GDP and inflation are lower on account of fiscal restraint. The baseline and full-blown Biden scenarios, which are premised on a Democratic trifecta, stand out as GDP is larger but inflation is not faster. This speaks to the positive supply side response to the collection of family support policies, which are modeled in the Biden scenarios.
• The federal debt-to-GDP ratio is lowest in the full-blown Trump and Biden scenarios. Higher tariff revenue and a repeal of the Inflation Reduction’s climate policies contribute to a lower debt burden in the former scenario, while tax hikes that largely match spending increases and positive macroeconomic feedback effects explain the reduced debt load in the latter scenario.

For more insights on the 2024 US Presidential Election, click here.