The presidential election is just days away. Will Trump emerge victorious, or will Harris claim the win?
The mainstream media seems divided on the outcome, labeling it a tossup. However, indications from Wall Street suggest that Trump may have a slight advantage.
Yet, as with many things in life, especially elections, there are no certainties. Anything can unfold on election night—ballot tampering, voter fraud, disputed ballots. The possibilities are endless.
What unexpected event might cloud the election results this time? Will voters accept the declared winner, or could dissatisfied supporters from the losing side take to the streets, resulting in widespread chaos?
What about the stock market? Has Wall Street already factored in a potential Trump victory? If so, will we see a surge in stock prices to celebrate, or will we face a drop in a classic “buy the rumor, sell the news” scenario?
If Harris manages to win, will stocks plummet? If this occurs, could it represent a strategic opportunistic buying moment?
These questions merely scratch the surface, and we will have to wait until Tuesday—or possibly longer—for answers. Regardless of the outcome, there are realities we already recognize that will remain unchanged.
We understand that deficit spending will likely remain around $2 trillion annually. We also know that rising interest rates are placing significant pressure on the financial system, especially given the decrease in bond and real estate assets held by banks. Furthermore, conflicts in Ukraine and the Middle East continue to escalate.
Thus, inflation and chaos are almost certain to persist, which is what bond investors are anticipating.
Politically Motivated Decisions
The yield on the 10-Year Treasury Note has climbed to approximately 4.30 percent, up from 3.70 percent on September 18, when the Federal Reserve implemented a 50 basis point cut to the federal funds rate. This discrepancy suggests that bond investors do not view current prices as worth the risk, as they foresee rising inflation and impending chaos.
Moreover, the Federal Open Market Committee (FOMC) is set to meet on November 6 and 7, shortly after election day, to discuss future strategies for extreme intervention in credit markets. With Treasury yields having risen since the last FOMC gathering, will the Fed choose to pause the cycle of rate cuts?
The resolution to this will depend on the Fed’s willingness to acknowledge its potential missteps. The Treasury market has indicated that the initial 50 basis point cut by the Fed may have been a mistake driven by political motives.
If you’ll recall, just before the previous FOMC meeting, Senator Elizabeth Warren sent a letter to Fed Chair Powell, criticizing him harshly and claiming he was “behind the curve.” She then demanded a 75 basis point cut and subsequently called for even more reductions after the meeting.
Decisions influenced by political motives seldom yield positive outcomes. When it comes to monetary policy, these decisions can be particularly detrimental, benefitting the ruling class while negatively impacting wage earners and those reliant on savings.
Warren, in this case, sought to sway policy for her own advantage, advocating for cheaper credit to facilitate continued government borrowing and spending, all in support of her affinity for big government.
Justifying Rate Cuts
Powell himself is not immune to political motivations. Rate cuts serve his interests as well; a win for Harris means the status quo remains, preserving his position. One might speculate that bolstering stock values through pre-election rate cuts was a strategy to secure his role.
Conversely, a victory for Trump would likely lead to Powell’s exit from his post, necessitating a transition to another role within the banking sector supported by his policies.
In the meantime, Powell has various data points to possibly support further rate cuts at the FOMC meeting next week. For instance, the personal consumption expenditures (PCE) price index was released for September last Thursday. Similar to the CPI, the PCE index tracks changes in consumer price inflation.
Notably, the PCE price index is the Fed’s preferred measure, as it typically reflects a lower inflation rate than the CPI. The latest CPI data indicated an annual inflation rate of 2.4 percent, while the PCE figure reported a rate of 2.1 percent.
Ultimately, 2.1 percent is less than 2.4 percent and is closer to the Fed’s arbitrary target of 2 percent inflation. Thus, based on this data, Powell may argue that rate cuts are warranted. But are they?
While the Fed’s focus is said to be on core PCE—which excludes food and energy—this claim only holds true when it aligns with their narrative. Currently, core PCE is up 2.7 percent over the last 12 months. Consequently, it seems the Fed will highlight the overall PCE price index at this moment.
That said, the PCE report isn’t Powell’s only source of justification. Just around the time you read this article, or shortly thereafter, the Labor Department is expected to release the jobs report for October.
It’s anticipated that the number of new jobs created in October will fall short of September’s figures, partly due to the impact of two significant hurricanes in the southeast that led to job losses. Additionally, the Boeing strike will likely contribute to a lower jobs count. Thus, the jobs data is expected to be less favorable, providing further grounds for rate cuts.
Inflation and Chaos
Data can often be manipulated to support the desired narrative of its presenter. Government-generated data is especially vulnerable to manipulation by current administrations that wish to portray a favorable image and justify their decisions.
However, just because data tells a particular story does not mean it reflects reality. Some narratives may be outright fabrications. For instance, the notion that consumer price inflation is decreasing is often misleading. Prices are still on the rise; while the rate of increase may have slowed compared to two years ago, the upward trend persists.
Moreover, consistent year-over-year increases compound over time. In the past four and a half years, consumer prices have surged by over 22 percent—increasing from 258.115 in March 2020 to 315.301 in September 2024.
When you layer on an additional 2.4 percent from the latest CPI, it wields a more profound impact than 2.4 percent did several years ago—an observation supported by government data that many believe underrepresents true inflation rates over this period.
In summary, it’s clear that further rate cuts from the Fed are on the horizon. Powell refers to this as “policy gradualism.” Moreover, as noted last week, if the Treasury market chooses not to align with the federal funds rate’s decline, the Fed may resort to implementing more quantitative easing to artificially adjust yields.
On another note, gold currently stands at approximately $2,750 per ounce, serving as a stark indicator of the inflation and chaos we are experiencing.
[Editor’s note: Have you heard of Henry Ford’s dream city in the South? If not, I’ve recently published an important special report titled “Utility Payment Wealth – Profit from Henry Ford’s Dream City Business Model.” If you are interested in how this lesser-known facet of American history can generate wealth, I invite you to obtain a copy. It’s an affordable investment—less than a penny.]
Sincerely,
MN Gordon
for Economic Prism
