the effect of the re-election on markets and the Fed

The attention of the markets moves from the inflation-Fed combination to the next ones US electionswhich will take place in November 2024, while the primaries come to lifewith a landslide victory for former President Donald Trump in Iowa and the possibility of replication offered by New Hampshire. But what will happen if Trump is re-elected to the White House instead of Biden? What changes could affect the markets and the Fed?

The race for the primaries

Trump is reasserting himself as ideal candidate to face the current President Joe Biden in the race for the White House, ahead of South Carolina candidate Nikki Hailey, who gave way to the former president in one pilot state like Iowa. The small Midwestern state as well as New Hampshire, where Trump is preparing to reply tomorrow, has a more symbolic than numerical value.

With just 57 thousand votes, the tycoon won the majority in Iowa, a sparsely populated rural state inhabited mostly by whites, where he won 20 delegates out of the 1,100 total he has to win. Together with New Hampshirea wealthy area of ​​the northeast, is worth just 1.4% of the Republican electorate, therefore not very representative in terms of delegatesbut much significant for the quality of the electorate which represent, very close to the national figure.

Good indications have come from the polls, with Trump winning 52% of the vote in New Hampshire compared to the 35% attributed to his competitor Hailey.

The impact on the markets

At this point we are already starting to wonder what will happen with a Trump victory. His return to the White House will undoubtedly say hello to one generous fiscal policy, especially towards businesses and one accommodative monetary policy and conducive to growth. In an interview given last September, Trump said that rates were “too high.”

That said, Trump he did not criticize the Fed’s choices in the recent past and defined inflation as “a killer of the country”, implicitly accepting Powell’s monetary policy choices. But the scenario next autumn will be more favorable to a rate cut and therefore to a policy more in keeping with Trump’s program.

On the market front, a period of great volatility is expected, but the election outcome will give greater prominence to some sectors rather than others: in 2020, with Biden’s victory, stocks linked to renewables and healthcare rose. A Trump victory could instead benefit US manufacturing, given a more protectionist policy, the auto sector and Made in USA technology.

In general, the Republican victory he always favored one rise of the markets: during Trump’s Presidency the Dow Jones index showed an increase of 56% and the S&P 500 index of 70%, while during the Biden Presidency the S&P 5090 index gained only 21%

The effects on the Fed

As anticipated, Trump could minimally influence Fed policy, leading to a more accommodating and credit-friendly policy. But the biggest impact of his re-election will be on the leadership of the US central bank, since the mandate of Powell is close to expiring in 2026 and his stay on the Board in 2028.

Trump at the White House – writes the Financial Time – he could in fact win a couple of places on the Boardincluding Judy Shelton of the Independent Institute, already rejected in the other round, Kevin Warsh of the Hoover Institution, or even Arthur Laffer, the economist of the very famous curve of the same name, which designs the neutrality of fiscal policy beyond certain rates.