As the 2024 presidential election approaches, TD (TSX:TD) Cowen analysts are considering how Kamala Harris might approach monetary policy differently from Donald Trump if she were elected.
The bank told investors in a note this week that while there may be little substantive difference in the ultimate goals of their monetary policies—low rates, low inflation, and high employment—their approaches could diverge significantly.
TD Cowen notes that both Harris and Trump would likely favor policies that keep voters satisfied. However, the key difference lies in their methods.
"Harris is unlikely to try to strong-arm the Federal Reserve on rates and is likely to continue to nominate economists who prioritize the central bank's independence," according to TD Cowen analysts.
This suggests that Harris would maintain a more traditional and hands-off approach, allowing the Federal Reserve to operate independently, which could be reassuring to bond investors.
In contrast, TD Cowen notes that Trump has repeatedly expressed his desire to have more influence over interest rate decisions.
The bank's analysts believe that Trump would likely elevate individuals to the Federal Reserve who are more willing to give him a "seat at the table."
This could have significant implications for the bond market, as any perceived weakening of the Fed's focus on stable inflation might lead to a loss of confidence and necessitate "recession-inducing rate hikes" to restore stability.
"We believe this only matters if the bond market views Trump's involvement as weakening the Fed's focus on stable inflation as a loss of confidence can require recession-inducing rate hikes to counter," TD Cowen explained.
Overall, while both candidates might pursue similar economic outcomes, Harris's approach would likely involve less direct interference with the Federal Reserve, whereas Trump might seek a more hands-on role in monetary policy.