The election came upon us. And the signal from long rates to the new president is that what needs to be done is to do nothing. Can it?
The US will elect a new president in a week, on Tuesday the 5th. It is known that Joe Biden’s reelection failed. He died before the party convention, after the first hand-to-hand debate. He simply didn’t give him the pignet. Not even the reflections. A stubborn man, he could not maintain his aspiration no matter how hard he clung to it. On the other hand, his Administration runs placidly in its final stretch, without dangers or shocks. Seen this way, the paradox is notable: being a candidate is much more demanding than being president. Biden capsized in the attempt, but he should not have given up the reins of the White House because of it. He will only step away from his official role in January. Nobody rushes it.
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What is President Biden’s legacy? The economy operates at full employment and is growing vigorously. It advanced 3% annualized in the second quarter and would have repeated in the third. Or maybe a little more. Goldman Sachs predicts 3.1%. The Atlanta FED, with its real-time forecast, stretches to 3.3%. Not bad when it comes to the service record of a former candidate dismissed for incompetence. Inflation recedes. It is not his direct merit, that is the FED’s task. But inflation that is heading towards the 2% range is a central part of the legacy. Measured by the personal consumption deflator, it increased 2.2% in the last twelve months to August. And the package includes the central bank’s points map, a tentative roadmap that reduces interest rates by one and a half points until December 2025. The task is underway. It is not a mere promise. It began on September 18 with a half point cut. It’s a red carpet that spreads a warm welcome. The White House is in order. Comfortably habitable for its next tenants.
Kamala Harris or Donald Trump? Who will win the election? It is a very hard-fought contest, say those who know. In other times, the response was sung. “It’s the economy, stupid.” James Carville, Bill Clinton’s electoral strategist, coined the slogan in 1992. Today, in the age of social media, even stupidity is more complex. Inflation fell from 7% in June 2022 to 2.2% in August, but people resent that prices are not back to what they were before the pandemic. No matter the million-dollar creation of jobs or the rise in real wages, the stronger the lower the income decile. For the average voter, Biden’s economy was not good. It is the envy of the world, The Economist said. Yes, but he is not a prophet in his land. The inflation accumulated during his administration – 20% since he took office in 2021, more than double that registered in the previous four years – took a lethal toll on the president. And his simple endorsement mistreats his replacement on the official ticket.
Polls indicate that the candidates are even, and that the light advantage that Harris had is no longer visible. Trump wins in the betting markets. A French investor tipped the balance with four positions totaling 28.6 million dollars in Polymarket: there his chances exceed 63%. Those who know politics say that the race is for anyone, but there are signs that are not favorable for Kamala. That he grants interviews everywhere after systematically refusing when he was leading in the polls is one. The appearance of former President Obama at campaign events is similar to an emergency resource. Although it may work, the reports did not go well at all. In recent polls, no matter which ones, in all of them, a compact growth in Trump’s numbers is detected. Finally, no one forgets the shameful vote. The real estate magnate always obtained – in 2016 and 2020 – more votes than his voting intention.
What does Harris have going for him? It prevails among women and on the issue of abortion, which according to the NBC survey is the most motivating topic in the election. That is the key for Kamala: the more society mobilizes and goes to the polls, the greater her chances of success.
And what do the markets say? The “bond watchers” and long rates have already voted in advance. The FED lowered its rates by half a point. They climbed that same, and, this week, added an extra – 0.10% / 0.13% – that can be attributed to political sensitivity. The ten-year rate reached 4.25%. It will reach 4.5% or 5%, different oracles speculate. Because? Harris’ platform would increase the deficit by $3.5 trillion over ten years, according to the CRFB think tank. Trump’s, 7.5 billion. “We are going bankrupt,” declared a successful trader, Paul Tudor Jones, out loud. James Carville said that if he could he would like to be reincarnated, not as a president or the Pope, but in the bond market. Because his will is capable of sinking any economic plan that dares to contradict it. We are warned. The bonds, this week, conveyed their irritation.
What long rates tell the new government is that all it needs to do is do nothing. Let him take advantage of Biden’s legacy. The economy is growing healthy. Inflation is heading, by itself, towards the 2% garage. And the FED is convinced that it must lower rates all next year.
What can Harris or Trump add? The bull market celebrated two years of this. The bonanza is widely distributed. A harmless government will allow the FED to lower rates peacefully and ensure a soft landing. Is it too much to ask that he drive on autopilot, and not a storm pilot with the strange idea of creating a storm to stand out?
Source: Ambito