The outcome of the 2024 presidential election could have a major impact on markets and the economy, as both candidates are focused on tackling inflation to gain voter support.
Donald Trump, who has yet to release a detailed economic plan, promised to “make America affordable again” in a campaign speech last week. While he promised to lower prices and extend tax cuts, he also blamed Kamala Harris and the Biden administration for persistent inflation.
Vice President Harris outlined her economic agenda in North Carolina on Friday, which included pledges to “tackle price gouging,” expand the child tax credit and provide housing assistance to homebuyers and renters.
Veteran economist Nouriel Roubini said Trump’s proposed policies, including blanket tariffs and an extension of the 2017 tax cuts, were a “very dangerous” combination for both the economy and markets that could ultimately lead to higher prices.
“There are a number of policies he could take that actually make sense for the economy and the markets,” Roubini said. “But if you take at face value what he wants to do on trade, currency, monetary policy, fiscal policy, [the policies would] It is very dangerous.”
Goldman Sachs estimates that Trump’s proposed tariffs of 60% on Chinese imports and 10% on everything else would lead to a 1.9% increase in consumer prices, though that estimate may be conservative, as Trump recently suggested import tariffs could rise to as high as 20%.
Former president and Republican presidential candidate Donald Trump delivers a keynote speech at the Bitcoin 2024 conference in Nashville, Tennessee on July 27, 2024. (John Cherry/Getty Images) (John Cherry via Getty Images)
Mark Zandi, chief economist at Moody’s Analytics, told me this is a bad idea that “will never end well.”
“The basis for a well-functioning market economy is an independent central bank, and any action that undermines that independence is a really bad idea,” Zandi said. “It would lead to higher inflation and a weaker economy.”
Nobel Prize-winning economist Paul Krugman compared the situation to the 1970s, when the Richard Nixon administration pressured central banks to ease policy.
“The real, serious politicization of monetary policy occurred under Richard Nixon, with disastrous results,” Krugman told me. “An unnecessary burst of inflation was the catalyst for everything that went wrong in the rest of the 1970s.”
Trump and his allies have pushed back against concerns that Harris’ economic policies would be more inflationary than those of her opponents. In a call with reporters, former Trump senior adviser Kevin Hassett called Harris’ economic policies “disappointing” and argued that they would “double down on the Biden administration’s inflationary policies.”
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Stephen Moore, a policy adviser to Trump, told reporters that the argument that Harris would be good for fighting inflation “doesn’t make sense.”
“Kamala Harris and her economic advisers came up with the idea of price controls. … This is a strategy that was used by Republicans and Democrats, Richard Nixon, Jerry Ford, Jimmy Carter, in the 1970s, the last time we had a big wave of inflation. And I think it’s fair to say that almost all economists now agree that those policies were a complete failure.”
Comparing Trump’s proposed policies with Harris’ economic policies, Roubini said it comes down to predictability, and investors look favorably on certainty.
“Harris will be more predictable,” Roubini explained. “There are some differences compared to Biden, but we know her policies and they’ve actually been pretty good. Economic growth is strong, the stock market is at an all-time high, bond yields are low, job creation is strong. There are a lot of problems with the U.S. economy, but they’re secular, not partisan.”
Democratic presidential candidate Vice President Kamala Harris speaks during a campaign event in Raleigh, North Carolina, Friday, Aug. 16, 2024. (Photo by Associated Press/Mike Stewart) (AP)
Amid the inflation debate, another big issue looms on Wall Street that has yet to receive much attention from either candidate: the deteriorating fiscal situation.
The Committee for a Responsible Federal Budget estimates that the policies outlined in Harris’s platform plan could add $1.7 trillion to the deficit over 10 years, and that could rise to $2 trillion if the temporary housing policies are made permanent.
The Congressional Budget Office estimated in May that extending the Tax Cuts and Jobs Act would add $4.6 trillion to the budget deficit over the next decade, about $1.1 trillion more than its previous projection.
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