What to Expect on this Side of the Election

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What to Expect on this Side of the Election

Well, the election is over and regardless of who you voted for, I hope you are staying sane. If you want a refresher on ways to do that, feel free to listen to our last episode that offered tips and perspective focused on affecting what you can rather than trying to control what you can’t. We have a new era ahead, and as with any change in leadership, there are bound to be some economic themes that emerge. I want to utilize this episode to give you a preview of what you might see over the next four years:

• Rates that are higher for longer – The bond market has already adjusted since election day with the 10-year government bond roughly 1% higher than it was in September. There is also speculation brewing that the Fed might be done with rate cuts by December. If that is the case, the Federal Funds rate would level out at roughly 4.5%. The Fed has already indicated that they are not in a hurry to lower rates. They are aware of the mistakes of previous Fed Boards, particularly in the 70’s that lowered rates too quickly, only to see inflation reignited. They don’t want to repeat that mistake. Inflation may not be blazing right now, but there are still embers that have yet to be put out. Rates could remain in this middle range until there is greater confidence that it doesn’t flare up again.

• Fights over where to make spending cuts – Regardless of the political party, I applaud any efforts to review government spending to look for ways to cut what is unnecessary. An institution as large as the Federal government needs accountability for how it is spending its money. Elon Musk and Vivek Ramaswamy will be an interesting duo to begin this work. But as they begin to make recommendations, you can be sure there will be disagreement over what is necessary and what is not. Everyone has different things they value when it comes to spending government money, so it may be painful as we try to hash this out over the next few years. Larger picture questions will be asked and wrestled with, such as “What is the role of government in the first place?”.

• An extension or additional tax cuts – The last round of tax cuts are set to expire at the end of next year. At the very least, with a red sweep, we are likely to see these tax cuts extended. But it is also possible that we see certain taxes lowered. On the corporate tax front, we could see that rate cut to 15% It’s currently at 21%. On the personal tax front, we could see the top marginal tax rate go from 37% down to 25%. There could also be a widening of the 0% tax bracket to $50,000 in taxable household income. In other words, more people would pay no tax at all. We could also see the Inheritance Tax done away with all together. Some of these possibilities are only going to come to fruition if there is a completely united Republican legislature. Historically, not all of a candidate’s policy wish list gets done. But it is very possible some of it will.

• Deregulation – The next four years are going to have a heavy emphasis on lightening the regulatory burden for several industries. As a matter of fact, the best performing sector in the S&P 500 the day after the election were financial stocks. That doesn’t mean that banks are going to knock it out of the park these next four years, but is does mean that the initial reaction to an environment of deregulation rewarded banks. Now appropriate regulation is certainly needed. But one of the questions asked over the next few years will be “What does appropriate regulation look like?”

• Tariffs – They are coming and they could be, “Yuge.” China will be the first target. But as to how big they will be, that remains to be seen. Tariffs have historically been understood to be inflationary, because they generally reduce competition from markets with lower cost structures. However, if the end result is not tariffs, but forcing trading partners into fair trade agreements, this inflationary force could be temporary. But if it leads to countries going back and forth with tariffs on goods, this, again is inflationary. I’m afraid we will see the latter – countries retaliating against the US with tariffs of their own – but I would be glad to be wrong on this one.

• Immigration Reform – This could include deportation – which is also inflationary. If millions of undocumented immigrants leave the workforce, we will have an even tighter job market in certain industries. If the legal immigration process goes through a complete makeover, and if there are paths for legal immigrants to re-enter the workforce, once again, this could be a temporary phenomenon. But I think the reworking of the legal immigration process will take a great deal of time, so I think that’s another inflationary force we will have to contend with over the next four years.

Now, whether you are excited about these themes, or think they are the worst ever, I think it will take time for them to come to fruition. It will take some time, and it won’t be a straight line.

There is more to be said, but the goal of this podcast is to give high level overviews of major themes rather than a comprehensive study of each and every area likely to undergo change in the new administration. What we can certainly count on is change. And that change will not be uniformly good or bad. There will absolutely be some positive economic change to look forward to. But there will also be negative changes, so that are unintended side effects that we will have to contend with as well. That is a more objective expectation that I think we all need to keep in mind.

In an uncertain rate environment, it might be helpful for you to know that we have some creative solutions for borrowing money that give you options as interest rates go down. If you need to borrow money anytime soon, check in with us by visiting foundationbank.org. We also hope you’ll subscribe to this podcast to it in your favorite podcast app and share it on social media. These episodes are not recommendations specific to your own unique circumstances. Please consult your own advisors. Foundation Bank and MBC are a member FDIC and an equal housing lender, and until our next episode, God bless you.

-President Chad P. Wilson, CFP

Today’s episode of “Money Matters” was written and recorded by President Chad P. Wilson of Foundation Bank/McKenzie Banking Company on November 19, 2024. This episode does not constitute financial advice. Please consult a financial professional to discuss your specific needs. Any rates mentioned are subject to change and are accurate as of the recording date. MBC/Foundation Bank is an Equal Housing Lender, Member FDIC.