As the 2024 US presidential election approaches, ING has conducted an analysis outlining three possible scenarios and their impact on financial markets.
These scenarios explore the outcomes of different political configurations and their impact on domestic and foreign policies, trade, and the broader macroeconomic landscape.
1. Trump’s comprehensive victory
In this scenario, Donald Trump wins the presidency, and Republicans take control of the House and Senate. This leads to a renewed focus on expanding the 2017 tax cuts and driving domestic economic growth through initiatives to bring manufacturing back to the United States.
However, the administration is expected to delay international policies, including support for Ukraine and decisions on trade tariffs, as it prioritizes domestic concerns.
Market impact:
Forex: The US dollar is expected to rise due to loose fiscal policy coupled with tight monetary measures.
Interest rates: Bond yields are expected to rise, with the yield on the 10-year US Treasury note likely to exceed 5%.
Commodities: Oil prices may initially rise due to tax cuts but may decline in the long term as the US focuses on energy independence.
2. Trump is tied up
This scenario assumes that Trump wins the presidency, but with a divided Congress (with Republicans controlling the House and Democrats controlling the Senate). Legislative gridlock is likely to limit the scope for implementing Trump’s policies, especially on tax cuts and immigration controls.
Foreign policy could see a deal with Russia over Ukraine and a reduction in tensions in the Middle East.
Market impact:
Forex: The dollar may initially rise, but this depends on the success of Trump’s foreign policy. A weaker dollar policy may emerge if growth in the United States falters.
Interest rates: Inflationary pressures from tariffs could push bond yields higher, although some of these pressures are mitigated by additional tax revenues.
Commodities: Oil prices may face downward pressure due to easing tensions in the Middle East and a possible peace deal between Russia and Ukraine.
3. President Harris
In this scenario, Kamala Harris wins the presidency, Congress remains divided, and the focus shifts to strengthening the public finances, repealing Trump’s tax cuts and imposing new taxes on corporations and the wealthy.
A Harris administration is likely to maintain its strong support for Ukraine and global alliances, along with a more conservative approach to trade.
Market impact:
Forex: The dollar may weaken due to a combination of tighter fiscal policy and looser monetary measures.
Interest rates: Yields are expected to rise more quietly, as tighter fiscal policies balance a weaker economic outlook.
Commodities: Oil prices may initially decline due to lower growth prospects, but continued tensions in the Middle East and unresolved issues in Ukraine could push prices higher by the end of 2025.