US Election Dynamics Affecting Interest Rates: What to Expect from Jerome Powell’s Upcoming Speech

The faint upper krone has given the glossy images a summery feel. Because after the holidays, the bill for all the fun comes unstoppable.

In addition, the new dynamics in the US election campaign mean that the tension rises before the interest rate meeting on Wednesday at 20:00 Norwegian time.

– The interest rate decision itself may not change, but the meeting will remain No boring for that reason, says chief economist Kyrre M. Knudsen at SpareBank 1 SR-Bank to Nettavisen.

– Biden’s departure can push the interest rate, he said.

No doubt at all

Knudsen explains that the American market expects an interest rate cut in September.

The speculators have already priced in a 100 percent probability of this. Therefore, every word that comes out of the mouth of the central bank governor Jerome Powell is noticed, according to Knudsen:

– This makes his speech unusually sensitive to interest rates. If it creates too much doubt that there will be a cut, it will affect the market. Which could affect the next interest rate cut.

So this is a bit of a round dance:

– It will be difficult for Powell guarantee cut, but how it creates itself, for example “we are getting close”, becomes very interesting.

– Positive for the interest rate

– In the last two months, inflation has surprised on the lower side, but 2.5 percent is not 2.0 and core inflation landed at 2.6. It’s positive for the interest rate, says Knudsen.

It goes without saying that the Democrats will change their main candidate, perhaps to Kamala Harris, three months before the election:

– The departure of Joe Biden can quickly affect the central bank’s interest rate path. Even if Trump is still in charge, it is not certain how the Democrats’ election campaign will turn out with a new candidate and what election promises will be put forward, says Knudsen.

So a new move by the Democrats could add to more uncertainty about who will win the election – and how the election campaign will turn out.

Interest rate cycle

– Increased uncertainty can have a negative impact on financial markets. In addition, the increased tension means that both Democrats and Republicans can create additional – and more expensive – electoral promises. It can lead to

Federal Reserve, the central bank of the United States

” /> the interest rate refused to lower in September.

– How does this affect Norges Bank’s dilemma?

– It is important that Norges Bank lower interest rates in the US and Europe. The krone exchange rate has gone to pure caramel, and flat cuts abroad will put a little less pressure on the krone, says Knudsen.

The chief economist wants our central bank governor to think carefully about:

– I hope that Norges Bank is in the thinking box because it will be difficult to use only the interest rate weapon in the future.