As the 2024 presidential election approaches, TD Cowen analysts consider how Kamala Harris might approach monetary policy differently than Donald Trump if she were elected.
The bank told investors in a note this week that while there may be little substantive difference in the ultimate goals of their monetary policy – low rates, low inflation and high employment – their approaches could diverge significantly.
TD Cowen notes that both Harris and Trump are likely to favor policies that keep voters happy. However, the main difference lies in their methods.
“Harris is unlikely to try to strong-arm the Federal Reserve on interest rates and will likely continue to appoint economists who prioritize central bank independence,” TD Cowen analysts said.
This suggests Harris would maintain a more traditional and hands-off approach, allowing the Federal Reserve to operate independently, which could be reassuring to bond investors.
TD Cowen, on the other hand, notes that Trump has repeatedly expressed his desire to have more influence over interest rate decisions.
The bank’s analysts believe that Trump would likely elevate individuals to the Federal Reserve who are more willing to give him a “seat at the table.”
This could have significant implications for the bond market, as any perceived weakening of the Fed’s focus on stable inflation could lead to a loss of confidence and necessitate ‘recession-inducing rate hikes’ to restore stability.
“We believe this only matters if the bond market views Trump’s involvement as a weakening of the Fed’s focus on stable inflation, as a loss of confidence could require recession-inducing rate hikes to counter this,” explains TD Cowen out.
While both candidates could pursue similar economic outcomes, Harris’ approach would likely involve less direct interference in the Federal Reserve, while Trump might pursue a more hands-on role in monetary policy.
