Joe Biden’s withdrawal from the November presidential election leaves more questions than answers when it comes to the outlook for economic policy. China also surprised investors today with a -0.1% prime loan rate cut.
Joe Biden announced that he would not seek re-election as President of the United States in November.
He has endorsed his Vice President, Kamala Harris, who has confirmed that she will run. However, it is not yet clear whether she will secure the nomination.
There are technical campaign finance regulations and rules related to the primary votes that support her candidacy. But questions over “legitimacy” remain, with many Democrats preferring an open convention in mid-August where she would have to compete for the nomination, rather than a straight transfer of support.
If so, it’s unclear who would be willing and able to challenge her so close to the 5th November election, which will see some states open up early voting as soon as mid-to-late September.
Critical swing state, Ohio, moved the deadline to nominate a candidate on the ballot from 7th August to 1st September to accommodate the Democrat mid-August Convention. However, since the law only comes into effect on 1st September, if the Democrats have not nominated a candidate by 7th August, the Republicans are likely to launch a legal challenge to exclude the Democrat from the ballot.
Market Reaction
S&P500 future 5,564 +0.2%, Nasdaq Comp. 19,774 +0.3%, S&P/ASX200 7,912 -0.7%
US 10yr 4.23% -1bp, Aus 10yr 4.33 +5bps
US dollar (DXY) index 102.28 -0.1%, AUDUSD 0.6688 (unch), Gold US$/oz 2,411 +0.4%
Fin-X Wealth View
If Kamala Harris becomes the Democrat nominee, the former prosecutor and Attorney General of California will likely perform particularly well against Trump on matters of law, order, and the Constitution. His felony convictions, the January 6th events, the attempt to overturn the 2020 election, recent Supreme Court rulings, and Project 2025 represent relatively easy targets. She will also likely do relatively well on women’s rights and reproduction, while immigration could be more of a challenge, even as Donald Trump’s supporters prevented the bi-partisan immigration bill from passing Congress.
However, in any presidential election, the economy assumes primary importance. On Wednesday, the US is expected to announce the second consecutive quarter of sub-2% GDP growth.
In polls conducted in crucial swing states, CNN reported that Joe Biden’s economic record was a detractor as roughly 2/3 of the voters saw the economy as “fair” or “poor”. Some changes will likely be seen as necessary. Kamala Harris will find it difficult to win on Biden’s economic track record alone, but a new candidate may find it easier to outline a new economic vision.
Either way, neither Trump nor the Democrat candidate are likely to back away from fiscal expansion as part of their campaign promises. This means that a growing deficit and more inflationary pressure become more likely, with the possibility of higher long-term bond yields and even the Federal Reserve possibly choosing to delay or cancel the first interest rate cuts.
The one key policy difference relates to taxes, with Donald Trump promising to extend the 2017 tax cuts, which are due to expire at the end of 2025, and he may pledge more cuts. On the other hand, higher Chinese tariffs and 10% tariffs on all imports represent a possible one-off inflation shock.
Democrat policies are likely to avoid non-China tariffs, but it remains to be seen whether tax cuts will be offered to compete with Republicans.
Disclaimer
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