What impact will the presidential election have on the Fed’s policy on interest rates?

With the presidential race heading into November, polls show economists are trying to forecast how the Federal Reserve’s interest rate policy might change in the coming years under a new president.

Overall, analysts expect the economy to continue to grow under the leadership of either Democratic nominee Kamala Harris or Republican nominee Donald Trump. However, each of them presents different economic scenarios depending on what policies they pursue.

The Federal Reserve is designed to be an independent, nonpartisan institution so that central bankers can make decisions based on best economic practices rather than political considerations. While Federal Reserve officials do not support the policy proposals, they said they are willing to consider how fiscal policy will affect the economy.

“We accept any policy passed by Congress and signed by the president as input into our analysis of the economy,” Minneapolis Fed President Neel Kashkari said at a recent event. “Whether it’s tariffs, taxes or spending, it all just goes into our analysis of where we think the U.S. economy is headed.”

These policy changes could complicate the job of Federal Reserve policymakers as they seek to steer the economy toward a soft landing. This has already been a thorny path. Persistent inflation and rising unemployment have made the path forward difficult. Hurricanes and labor strikes have clouded economic data that central banks use as guidance. That left economists unsure whether the Fed will continue to cut its influential federal funds rate or stick to strict measures for the 2025 transition.

Economists examined some likely outcomes of both candidates’ key policy decisions to gauge how the Federal Reserve might respond.

Trump’s tariff proposal could affect Fed policy

Economists see two different scenarios for the Federal Reserve under a Trump presidency, depending on whether his administration can implement the sweeping tariff hikes he has proposed.

“It will really depend on what Congress’s outlook looks like in terms of our call on Fed funds,” said Jay Bryson, managing director at Wells Fargo and chief economist at its corporate and investment banking unit.

Unless tariffs are raised significantly, a Trump presidency is projected to lead to higher economic growth through tax cuts and increased deregulation, although stricter immigration policies could pose some drag on economic growth, a Deutsche Bank group led by its chief economist said in a report USA. Matthew Luzetti.

Economists said that in this scenario, the Fed may have to keep interest rates higher than currently planned to prevent a rebound in inflation.

However, if Trump succeeds in getting his proposed tariff policy passed, Deutsche Bank analysts say inflation is likely to rise. This could potentially force the Fed to raise rates, especially if consumers expect inflation to continue rising.

Betting Outlook for a Harris Presidency

Deutsche Bank said a Harris presidency is not projected to produce the same surge in growth as in Trump’s scenario, potentially allowing Fed officials to cut rates more aggressively than currently expected.

Bernard Yaros, lead US economist at Oxford Economics, said a Harris presidency could change the Fed’s calculations in a number of ways.

“It is policies, especially child care, that increase labor supply; they increase the speed of the economy,” Jaros said on a teleconference discussing the aftermath of the election. “So when we accelerate economic growth by increasing labor supply, it is not inflationary. This allows the economy to grow at a faster pace without causing excessive inflation.”