US election update: Another historic development

Summary

• President Biden's announcement yesterday that he will not seek re-election this fall provided yet another twist in what has been a historic past two months in U.S. politics. President Biden endorsed his vice president, Kamala Harris, for the Democratic nomination.

• It goes without saying that the current situation is highly fluid, and we would caution against jumping to conclusions about the path ahead. Vice President Harris clearly has the inside track to become the nominee. A slew of prominent Democratic politicians already have endorsed Harris, including President Biden, and prediction markets have Harris as the overwhelming favorite to win the nomination.

• There are some limited public polling data available on a Harris vs. Trump matchup, and they show a race that is fairly similar to what the polling showed for a Biden vs. Trump race. But, these polls were conducted when the contest was merely hypothetical. We suspect it will take time before a Democratic nominee is officially chosen, that individual chooses a vice president, the new Democratic ticket makes its pitch to America and the dust settles enough that the polls can effectively capture voter sentiment about the new matchup.

• In a situation fraught with uncertainty, we feel there are a few things we can say with some confidence. First, the Republican ticket is set, with former President Donald Trump choosing Ohio senator J.D. Vance as his running mate. With the Republican National Convention concluded last week, the Republican ticket can now turn to the general election and await the developments on the Democratic side.

• Second, in our view, it seems likely that a Harris administration, should it come to pass, would support many of the economic policies pursued by the Biden administration. Should Vice President Harris win the nomination, we will be watching closely to see what economic policy breaks she has with the current president, if any. We will be listening especially closely for the vice president's views on how to handle the expiration of the 2017 Tax Cuts and Jobs Act, one of the biggest economic policy question marks of 2025.

• Third, the path to a Republican sweep of Congress and the White House remains more straightforward than a Democratic sweep. Political analysts generally view this year's Senate map as more favorable to Republicans. Democrats are defending 23 Senate seats (including the three independents who caucus with the Democrats) this year compared to just 11 seats Republicans are defending. Polymarket, a prominent online prediction market, currently has the odds of a Republican sweep at roughly 40% compared to just 18% for a Democratic sweep.

• For now, we will not be making any major changes to our economic forecast in light of the news that President Biden will no longer be running for re-election. We still expect the FOMC to cut the federal funds rate by 25 bps at its September meeting followed by another 25 bps rate cut in December, with more cuts to come in 2025.

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