The US Presidential Elections on November 5 precede the FOMC meeting on November 7. Bookies have collected more bets favouring a Trump victory. However, key differences exist between 2016 and 2024, making it unlikely that the USD will fully re-enact its late-year rally.
In 2016, the DXY corrected lower due to poll volatility in the final fortnight before the elections. This year’s race is also too tight to call, boiling down to undecided voters and swing states to elect Vice President Kamala Harris or former president Donald Trump as the 47th President of the United States. Democrats are not complacent this time, having learnt from 2016, when Hillary Clinton won the popular vote but lost the electoral college to Trump.
Second, the US monetary policy paths are divergent. The DXY’s continued appreciation in the final two months of 2016 was also attributed to the start of a Fed hiking cycle in December 2016. US CPI inflation ascended again in 2H16 after stalling in 1H16.
Conversely, in 2024, US disinflation resumed in 3Q after a sticky 1H. On September 18, the Fed delivered its first cut and projected two 25 bps cuts in November and December. The Fed’s Beige Book report on October 24 should reaffirm the narrative of the US economy moving from extraordinary strength into better balance, supporting inflation’s return to the 2% target and for US interest rates to move into a more neutral setting in 2025. The Fed enters a blackout period next week before the FOMC meeting on November 7.
Beyond the elections, the next US President will face significant fiscal constraints. Tackling the sizeable global debt is a crucial issue at this week’s IMF/World Bank Annual Meetings. Without the Democratic Party or the Republican Party controlling the White House, the Senate, and the Lower House, political brinksmanship over the debt ceiling will return next year.
Today’s global economic and political landscape differs significantly from 2016. For example, the Bank of Japan started normalizing monetary policy this year by hiking rates and reducing bond purchases in 2024, eight years after introducing its negative interest rate policy and Yield Curve Control framework. The Chinese government is now focused on stabilizing the property sector by supporting developers and buyers, whereas in 2016, it was actively cooling the sector in 2016, and again in 2020. The UK’s political landscape has also evolved, with the current Labour government seeking a more stable relationship with the EU, contrasting sharply with uncertainty following the Brexit Referendum in 2016.
Quote of the Day
“Learn from yesterday, live for today, hope for tomorrow. The important thing is not to stop questioning.”
Albert Einstein
October 21 in history
The Nobel Prize in Economics was awarded to Robert Solow in 1987.
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