The Federal Reserve will issue its next policy decision on November 7, just two days after the upcoming U.S. presidential election. Another interest rate cut is likely, and market data will be critical for the Federal Open Market Committee as it weighs a rate cut of either 0.25% or 0.5%. The presidential election outcome is unlikely to impact the Fed’s decision making, unless the election result is still unknown at the time of the next policy decision. If the result is unknown, the Fed would be incentivized to announce a bigger rate cut.
A Fed Decision Two Days After The U.S. Election
As the FOMC weighs its interest rate decision in November, the outcome of the U.S. presidential election is unlikely to play a role in the Fed’s decision – unless there is no clear winner by the time the Fed issues its policy statement on November 7.
Make no mistake: The biggest downside risk to the U.S. economy in the near term is if Americans do not know who won the presidential election right away. An unknown U.S. election outcome presents significant downside risks to equity markets and investments of all stripes. It could weigh on business investment decisions and dampen consumer spending, especially if risks of political violence become elevated against a backdrop of uncertainty.
If it is unclear who the next president will be by November 7, the Fed will need to consider the downside risks to financial markets and the economy of political uncertainty.
The last time that there was an unclear election outcome was back in 2000, which triggered a recession beginning with a contraction in Q1 2001 GDP. If there is an uncertain election result this year accompanied by the risk of protracted recounts and lawsuits, the Fed would be incentivized to cut rates by 0.5% in an attempt to counter negative business sentiment and confidence that would be engendered by uncertainty.
Expectations For The November Interest Rate Decision
Current expectations are split about the potential size of a Fed rate cut on November 7. As of September 25 at 1:01 p.m. ET, the CME FedWatch tool reflected the odds of a 0.5% rate cut at 60%, while the odds of a 0.25% rate cut were at 40%. These odds have changed greatly in the past week. In fact, the likelihood of a 0.5% rate cut was only 14% on September 11.
As another potential data point, the results of a recent LinkedIn poll on this topic, conducted between Sept. 21-24 with 401 respondents, reflected the highest probability of only a 0.25% rate cut on November 7. Moreover, 26% expect no change in Fed interest rate policy. That’s a big difference from the implications of the latest CME FedWatch Tool.
These data differ because the CME FedWatch Tool is quoted in real time, while surveys are performed over multiple days. Additionally, the CME FedWatch Tool is based on market data, while this survey was conducted among a wide range of LinkedIn members. Finally, this LinkedIn poll was not done with the scientific rigor of professional polling.
Despite these differences and limitations, this survey reveals the valuable caveat that not all market participants have fully priced in any specific Fed action for November 7. Moreover, if this LinkedIn poll is even somewhat directionally correct, the CME FedWatch Tool appears to reflect some overestimation of the potential for a 0.5% rate cut.
Market And Economic Implications
More interest rate cuts lie ahead, with rates likely to fall on trend through at least the end of 2026, according to the FOMC members’ September 18 projections. This is good news for interest-sensitive industries like construction and manufacturing, and it is likely to lead to a boost in hiring across sectors.
Lower interest rates are also likely to weigh on the dollar, which would provide support for exports and exporting businesses. Plus, lower interest rates are likely to present upside risks for equity markets, bond prices, oil prices, and industrial metals prices. After all, lower interest rates would reduce companies’ weighted average cost of capital, likely bolstering private and public company business valuations and encouraging investments across the economy.
These are all generally positive dynamics, but risks related to the outcome of the U.S. presidential election could cast a large shadow over financial markets. It’s the biggest downside risk to that outlook, which is why the Fed may make a deeper cut to keep downside risks at bay — especially if investors don’t know who the president-elect is by November 7.
What do you think the Fed policy decision will be on November 7?
Let me know in the comments below.
Also, be sure to subscribe to my YouTube channel and visit Prestige Economics and The Futurist Institute for additional content about the economy, financial markets, and career insights.