November 2024

In Section I, we explain how recent positive data surprises are connected to expectations of Fed easing, meaning that they are self-limiting. Yields will rise even further if US economic data continue to surprise to the upside, which will put the US back on a recessionary path. A Republican sweep has the potential to be positive for US economic growth over the next year, but trade action under a second Trump presidency will likely be aggressive and economically damaging unless deftly offset by sufficiently large fiscal thrust. In Section II, we explain why the Fed is not politically biased, but has become structurally dovish because of the GFC, its shaken confidence in the “stars”, and its ability to forecast the economy. Over the next year, the Fed may appear to be acting in a politically biased way even if it is merely responding to economic developments. The Fed’s independence could be challenged under a Trump presidency if trade action is not severe.