SSGA: 2024 US Election – Big or Small Macro Policy Shift Coming?

4 april 2024

With President Joe Biden and former president Donald Trump confirmed as the nominees, it is an opportune time to examine the respective policy stances and what an election victory for either candidate would mean for the US economy.

For analyzing the potential macroeconomic policy shifts post-November, the outcomes of three potential scenarios – the status quo, a Trump presidency and split Congress, or even a Republican sweep – all remain live possibilities at this stage. 'The status quo would mean policy continuity with recurring battles over the debt ceiling, and likely similar negotiation results, i.e. a neutral fiscal impulse (though debt dynamics are organically worsening – more on that below). A return of Trump to the White House, even with a split Congress, would likely deliver larger policy changes in non-fiscal areas, so it is worth focusing on the most significant policy themes through a macroeconomic lens,' Elliot Hentov, Head of Macro Policy Research at State Street Global Advisors, says.

Macroeconomic policy implications of possible US election outcomes

• Inflation Reduction Act – No substantial change in the government’s application of the IRA expected, the major policy difference would likely be around the level of support for the fossil fuel industry without negating the bulk of the IRA provisions.
• US-China trade – Trade measures could support a renewed wave of inflation, but only in conjunction with other inflationary forces.
• Migration-inflation – Neither candidate has a coherent policy platform to address this challenge, although Trump’s positions point to more labor supply constraints, and therefore, perhaps imply a ‘higher for longer’ rates environment.
• Fiscal picture – History suggests consumers increase preventive savings in advance of tax increases so this could slow consumption growth during 2025 if fears of broad-based tax increases become prevalent. In the absence of a tax increase, this implies a growing debt burden and higher debt servicing costs given America’s trend growth rate.
• Debt dynamics - Given that we do not foresee revenue raising measures to succeed (only imaginable under a Democratic sweep which we view as implausible), the political challenge for the next administration will be to decide where to restrict spending growth. Under Biden, we imagine the budget and debt ceiling negotiations to repeatedly generate cuts in discretionary and defense budgets. A Trump presidency may consider changes to entitlement spending, particularly in the healthcare-related parts of the US budget (e.g. Medicaid and Medicare).

What are the investment implications that investors should consider during this election year?

'Overall, we believe the macroeconomic policy divergence between the two parties is less this year than in the prior two presidential elections in 2016 or 2020. However, the areas subject to change are most closely wedded to inflation and rates – which have been the dominant investment drivers of the post-pandemic period. Long-term rates are clearly settling at higher levels, yet certain policy choices could increase them further. As the situation currently stands, there are no serious policy proposals that would do the opposite,' Simona Mocuta, Chief Economist at State Street Global Advisors, concludes.