How is the American economy doing before the elections?

The American presidential election will be held on November 5, and at the same time, 34 seats in the 100-member Senate will be voted on, as well as elections will be held in the 435-member House of Representatives. In the United States electoral system, the Electoral College officially chooses the president and vice president. Although the names of the presidential candidates appear on the ballots, the voters actually choose electors, who vote for the president based on the voters’ votes, writes Márta Balog-Béki, MBH analyst.

270 out of 538 electoral votes are needed to win. 93 of the 538 electoral votes were given by the so-called “battleground” states make up (this means almost 20 percent), so it is crucial who wins these on election day.

As things stand, Trump could win four of the seven, which would greatly help his victory. Nevada is currently tied, and in two other swing states, Harris leads by just a hair.

However, the elections do not only decide the person of the president, as it is not certain what kind of support the president will receive to implement his program. This may have a significant effect on the real economy (mainly fiscal and foreign trade policy) and on the financial market in the coming months.

In the 100-member Senate, 34 seats are up for grabs this year, of which 11 are currently held by Republican senators and 19 by Democratic senators. The seats of four independent candidates will also be vacant, so it is a question whether an additional Democrat or Republican candidate will be able to get into their place. 435 members of the House of Representatives will also be elected, where currently 212 Democrats and 220 Republicans occupy their seats. Three previously vacant seats will also be filled on November 5. According to expectations, the Democrats can reverse the ratio in the House of Representatives, there is a 70 percent chance that there will be a Democratic majority in the House, with 222 Democratic representatives.

That’s the current economy

US 10-year bond yields were above 4.25 percent on October 23, a high level not seen in nearly three months. The rise in long-term yields started at the beginning of October, following a better-than-expected labor market report, which also overwrote the market interest rate reduction pricing, market participants priced a reduction of around 50 basis points.

The macro data published since then also painted an overall good picture of the American economy, the rate of price increase also slowed down compared to the previous month’s data, in addition, the Fed continues to indicate interest rate cuts in the one-year time frame, and the market itself expects lower interest rates, in addition to which basically the long yields should also decrease.

In recent days, the focus has been less on macro data and more on expectations regarding the outcome of the election, after the forecasts took a prominent turn. Bookmakers are already predicting a Trump victory (60 percent chance) over Harris. Markets are therefore currently forecasting an outcome with higher inflation and debt levels.

The challenges of the budget and the development of the longer-term debt situation took a back seat overseas during the election campaign period, however, as the Republican victory chances strengthened, the term premium also jumped to a high level not seen in a year, and this partly explains the high level of long yields. According to the New York Fed’s ACM model data, the term premium turned positive on October 7 – indicating that investors are expecting compensation for holding government debt longer – and rose to 0.21 percent by October 21.

Whichever candidate wins the presidential elections, higher deficit and debt levels can be expected based on their outlined programs. The October 7th estimate of the CRFB think tank, examining the impact of the programs of the presidential candidates, came to the conclusion that in the event of a Trump victory, the US debt level would increase twice as much (US$ 7,500 billion) by 2035 as could be expected in the event of a Harris victory (US$ 3,500 billion ). According to the think tank, in the case of Trump’s program, the national debt could rise by 17 percentage points to 147 percent of GDP, while in the case of Harris, it could rise by 8 percentage points to 133 percent of GDP.

You don’t have to give up excitement before the elections either. The next labor market report will be published on November 1, and based on market expectations, employment data can be expected to be much weaker than the September results. And this could even cause another turn in interest rate expectations and the dollar exchange rate – so we can expect greater volatility in money market instruments until the elections.