Wealth management
Election market aftermath
What could the Republican sweep in November mean for inflation, interest rates and global markets? TIAA’s Wealth Management CIO and government relations expert tackle these questions and more.
Summary
- After winning control of the White House and both houses of Congress, Republicans may face challenges in implementing their economic and fiscal policies due to potential pushback from bond investors and the Federal Reserve—particularly on tax cuts and tariff hikes, which could drive inflation and interest rate concerns.
- The immediate postelection financial market reaction saw a rise in equities and the U.S. dollar, driven by optimism around economic growth under Trump’s policies, particularly in sectors like financial services and IT; however, concerns over tariffs and their potential to fuel inflation and high interest rates tempered this enthusiasm.
- Key issues for Congress in 2025 will include tax reform, as many provisions of the Tax Cuts and Jobs Act are set to expire, and geopolitical tensions, especially with China, as increased tariffs and strained relations could further impact the global economy.
Tax cuts and tariff hikes versus bonds and the Fed
Republicans pulled off the Election Day trifecta, winning not just the White House but majorities in the U.S. Senate and U.S. House of Representatives too. Yet according to Niladri “Neel” Mukherjee, TIAA Wealth Management’s chief investment officer, controlling three branches of government might not grant Republicans unfettered control of economic and fiscal policy.
“There is a new fight in town,” Mukherjee wrote in
Mukherjee recently sat down with Chris Spence, TIAA managing director for federal government relations, to discuss the outcome of November’s elections and why the tax cuts and tariff hikes favored by Republicans could get pushback from both bond investors and the Federal Reserve in the form of higher interest rates (or at least the threat of higher rates).
You can watch the full postelection webinar
QUESTION: Why do you think voters chose former President Donald Trump over Vice President Kamala Harris?
SPENCE: We saw 92% of counties move toward Trump. Why? One obvious explanation is the economy. Exit polls indicated 40% of voters claimed the economy was their top issue. Yes, we’ve seen inflation come down. But wages haven’t necessarily kept up. Prices are still high. So, folks are still feeling that when they go to the grocery store. And while a current president or vice president may not have as much influence over the economy as everybody tends to think, they, ultimately, are going to be the ones who take the blame.
QUESTION: How have financial markets reacted?
MUKHERJEE: In the days after the election, the quote-unquote “Trump trade” was in full swing. We saw a significant move higher in equities and in the U.S. dollar. The initial view of Trump’s policies was that they would lead to better economic growth. That’s why small-cap equities were up something like 8% within a few sessions. Sectors like financial services and information technology rallied quite a bit because those sectors are believed to benefit from lighter regulations, which Trump has talked about.
But in subsequent trading sessions, we’ve seen that postelection rally fade a little bit. Investors are really coming to grips with the negative implications of future policy. The uncertainty of tariffs, for instance, could have a negative impact on growth and inflation. Walmart’s CEO said that new tariffs would force them to raise prices. We heard something similar from the CEO of Lowe’s—they are concerned about tariffs because more than 40% of their goods sold come from outside the U.S. The worry is if you push through tariffs, inflation will accelerate and interest rates will rise. And that could make the Fed very nervous.
The Fed will just have to be very careful about committing to cutting interest rates quickly. Already, the market has pulled back their expectations of how many times the Fed can cut interest rates in 2025.
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QUESTION: What will be the biggest issue before Congress in 2025, at least for investors and the economy?
SPENCE: The big issue next year is going to be taxes. Many of the provisions in the Tax Cuts and Jobs Act, which was enacted in 2017, are set to expire after 2025. This includes tax rates, tax brackets, the standard deduction and estate taxes all going back to pre-2017 levels. Since this was their legislation originally and they do have control again, Republicans will want to extend as many of those provisions as possible.
Problem is, it has a $4.5 trillion price tag over a 10-year period. It’s going to be an interesting conversation and an interesting debate because a lot of campaign promises were made around extending these tax cuts and making sure that there’s not significant tax increases on Americans.
QUESTION: How about geopolitics? How does the Trump win affect the global economy and global markets?
MUKHERJEE: The relationship between the U.S. and China is obviously the biggest issue in the world. You have this economic split that is going on between these two superpower nations. There seems to be a significant increase in distrust between the two. China feels that the U.S. is trying to slow down its progress. The U.S. argues that China is stealing its technology and gaming the global trading system. And as a result of this increase in distrust, they’re both investing heavily in themselves to become more economically resilient. Now, with Trump 2.0 and threat of 60% tariffs on Chinese imports, that will only intensify hostilities.
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For more insights on how results of the 2024 U.S. elections might impact your taxes or investments—and to discuss the implications for your financial plan—please
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