Economy

U.S. Election: Risky Business

By: Oscar Muñoz, Gennadiy Goldberg, Chris Krueger, Jan Nevruzi, Molly McGown, Mark McCormick

Jul. 29, 2024 - 5 minutes

Former President Trump’s policy platform poses the most meaningful implications for economic projections and represents the most uncertain outcome for markets if there is a Republican sweep in Congress. On the other hand, the Democratic policy platform is a more known quantity and likely to represent fewer surprises for market participants as they are the status-quo — even in the scenario of a Democratic sweep in the November elections.

Given that a Democrat presidency would maintain status quo and not likely to represent any major surprises to markets, we focus below on the macro implications from the key policies under a Trump administration.

Markets will care about three broad categories — immigration, tariffs, and fiscal policy.
Immigration should have the largest impact on the economy, followed by the impact of tariffs. While deficits are likely to rise further regardless of who wins the U.S. election, a split government increases the risk of a debt ceiling standoff and a further U.S. credit rating downgrade.
Unlike his first term, Trump would aim to implement new tariff and immigration policies as soon as he is sworn in. These initiatives would not require Congressional approval.
While Trump took about a year to formalize new tariffs during his first term (implementing them in January 2018), we believe this time his flagship policy proposals for tariffs and immigration would be executed during the first 100 days of his new administration. This suggests that the first macro impacts are likely to be visible by mid-2025. This would push inflation sharply higher in 2025 and growth lower in 2026.

Key Event Dates in New Presidential Administration

Dual negative supply-side shocks would place the Fed in a bind. We assume the Fed's initial response would be to stay patient, with policymakers likely postponing any planned rate cuts over H1 2025 as they assess the first effects from Trump's policies. As the initial inflation shock fades away and the negative impact on growth starts to take hold, we expect the Fed to resume cuts rapidly in Q3 2025.
Markets have already begun to factor in the potential for a Red Wave, with the Treasury curve bear steepening sharply. The curve is likely to continue bear steepening in the event of a Red Wave, but bear steepening could eventually give way to bear flattening.
It might take a bit more time for the U.S. election to become the key FX driver, but Trump is likely USD bullish. Tariffs could undermine global confidence, supporting the USD through growth, equity, and risk channels.

Potential U.S. Election Outcomes, Policy Focus and Market Reactions

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Oscar Muñoz

Chief U.S. Macro Strategist, TD Securities

Oscar Muñoz
Chief U.S. Macro Strategist, TD Securities

Biography

Oscar Muñoz is the Chief U.S. Macro Strategist at TD Securities, providing research and analysis on the U.S. economy and financial markets for both internal and external clients. He's consistently been one of the top-ranked forecasters for U.S. CPI in recent years in the Bloomberg polls.

Gennadiy Goldberg

Head of U.S. Rates Strategy, TD Securities

Gennadiy Goldberg
Head of U.S. Rates Strategy, TD Securities

Biography

Gennadiy is Head of U.S. Rates Strategy, providing market commentary on interest rates and the U.S. economy and focusing on Treasuries, swaps, TIPS, and supranational and agency debt. He also focuses on US fiscal dynamics, monetary policy functioning issues, and front-end markets. Gennadiy was ranked top five in the Federal Agency Debt Strategy category in the Institutional Investor’s All-America Fixed Income Research team surveys between 2017 and 2021.

Chris Krueger

Managing Director, Washington Research Group - Macro, Trade, Fiscal & Tax Policy Analyst, TD Cowen

Chris Krueger
Managing Director, Washington Research Group - Macro, Trade, Fiscal & Tax Policy Analyst, TD Cowen

Biography

Chris Krueger joined TD Cowen Washington Research Group in August 2016 as the Washington Strategist. Mr. Krueger and the TD Cowen Washington Research Group were recently named #2 in the Institutional Investor Washington Strategy category, where he had been consistently ranked for the past decade along with WRG. Mr. Krueger publishes the DC Download, a must-read daily for Wall Street portfolio managers who want a quick look at the top Washington stories and their impact on the capital markets. Mr. Krueger covers DC macro, fiscal, tax and trade policy.

He held similar positions at Guggenheim Securities, MF Global, Concept Capital, and Potomac Research Group. Earlier he worked for nearly four years on the senior staff of the House of Representatives. He has also worked on several local, state, and federal political campaigns across the country.

Mr. Krueger holds a BA from the University of Vermont and an MA in international relations from King’s College London. He appears frequently on CNBC and Bloomberg and is widely quoted in The Wall Street Journal, FT, Axios, New York Times, Washington Post, and POLITICO. He also speaks regularly at industry events and conferences, including the Milken Institute Global Conference, National Organization of Investment Professionals, and the New York Stock Exchange.

Material prepared by the TD Cowen Washington Research Group is intended as commentary on political, economic, or market conditions and is not intended as a research report as defined by applicable regulation.

Jan Nevruzi

U.S. Rates Strategist, TD Securities

Jan Nevruzi
U.S. Rates Strategist, TD Securities

Biography

Jan contributes to the team's US rates commentary and produces trade ideas, focusing on nominal and inflation-linked government debt, interest rate derivatives, and money markets. Prior to joining TD in 2024, Jan worked as a US Rates Strategist at NatWest Markets.

Molly McGown

US Rates Strategist, TD Securities

Molly McGown
US Rates Strategist, TD Securities

Biography

Molly McGown is a US Rates Strategist at TD Securities. Prior to joining TD, Molly worked as a Fixed Income Strategist at Bank of America and as a Data Scientist within HSBC Global Research. Molly graduated from the University of Maryland, College Park with a Bachelor of Science in Bioengineering. She also holds a Masters degree in Computational Finance from Carnegie Mellon University.

Mark McCormick

Global Head of FX and EM Strategy, TD Securities

Mark McCormick
Global Head of FX and EM Strategy, TD Securities

Biography

Mark covers the major FX markets and helped develop the analytical framework used for market analysis, forecasts and trade ideas across different asset classes. Before joining TD Securities in 2016, he worked as a Global Macro Strategist at Credit Agricole Corporate and Investment Bank in New York. He was responsible for covering G10 and Emerging Markets currencies in the Americas. Previous to that he was a G10 Currency Strategist at Brown Brothers Harriman.