With Trump Victory a Foregone Conclusion, Expect a Rate Cut in September
The Federal Reserve can now move forward as if we're post-election.
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There is no way to separate politics from the markets during a Presidential election year. Much of the trading action we see today directly reflects who traders and investors believe will win come November.
The past two weeks have shifted many views from a close election, where either party held a path to victory, to a Donald Trump victory. The debate — and I use that term loosely, as neither candidate did a good job answering the questions asked — ended in a victory for Trump. Perhaps calling it a Biden loss is more appropriate than calling it a Trump victory.
I believe the Democrats still held a chance, albeit a smaller one, until this past weekend. The failed assassination attempt of Trump likely cements him as the next president of the United States. It changes more than the election.
We have all heard Jerome Powell say that politics and elections don’t influence the Federal Open Market Committee (FOMC), but if he were to say anything differently, the media would slam him and the rest of the FOMC. The FOMC needs to maintain the visual of being unbiased and uninfluenced by the political situation.
That neutrality was a key reason I did not believe we would see a rate cut before the election, but my view here needs to change. With the election likely a forgone conclusion, barring a giant misstep by the Republican party or Trump, the FOMC can move forward almost as if it were post-election.
When we combine that fact with the favorable economic data of the recent months, a September cut should be the current expectation. That’s great news for small caps, big energy, companies looking to go public and alternative investments like gold and bitcoin.
Trump’s selection of JD Vance as his vice presidential nominee has ignited the crypto crowd, since Vance owns bitcoin and has spoken positively about blockchains. Although we’ve seen bitcoin, gold and small-caps rally as of late, a Trump victory gives those assets four years of runway to enjoy. It may be time to add a little right now and continue to build positions throughout the remainder of 2024.
At the time of publication, Byrne had no positions in any securities mentioned.
