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President Joe Biden is facing growing pressure to drop out of the presidential race. Donors, especially big donors, are reluctant to give more money, and The New York Times reports that some of them “have told Future Forward, the largest pro-Biden super PAC, that they will withhold roughly $90 million in contributions if Biden remains on top, according to two people briefed on the conversations.”
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Trump is also facing increasing pressure from his own camp, with 21 House Democrats and two Senate Democrats now publicly calling for him to resign, while top party officials including former House Speaker Nancy Pelosi (D-Calif.), Senate Majority Leader Chuck Schumer (D-N.Y.) and House Minority Leader Hakeem Jeffries (D-N.Y.) have met privately with the president, according to The Hill.
According to PolyMarket, the chances of the president withdrawing are increasing, standing at 79% as of noon on July 19th.
Now, if Biden were to leave office, that could have some impact on decisions like financial markets and the direction of interest rates, but it's hard to find a comparison between these situations.
In this climate, the next Federal Reserve Board (FOMC) meeting will be held on July 30-31, and as of July 19, there is a 95.3% probability that the Fed will not cut interest rates, according to the CME FedWatch tool. As previously reported by GOBankingRates, experts claim that the first rate cut will come at the September meeting, with the CME FedWatch tool putting the probability at 91.7%.
But it's unclear at this point whether Biden's possible withdrawal will affect officials' future decisions for the rest of the year.
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Interest rates will remain stable for now
Some experts, such as Michael Collins, CFA, founder and CEO of WinCap Financial, have argued that interest rates are likely to remain relatively stable if Biden exits the race.
“Any changes in interest rates will be driven primarily by economic factors and decisions of the Federal Reserve, not individual political candidates,” Collins said.
But he noted that if Biden is replaced by another Democratic candidate, there could be some impact on interest rates depending on the policies he proposes and how markets respond to them.
“But it's important to keep in mind that the Fed's decisions and overall economic conditions still have a significant impact on interest rates,” Collins said, adding that the Fed is an independent institution and its policies are not directly affected by political changes such as the entry of new candidates into the race.
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The Fed's primary goals are to promote price stability and support economic growth, so any decisions made by the new nominee must be consistent with those goals, he added.
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Potential long-term effects
Biden's departure may not affect interest rates in the short term, but that could change depending on who his successor is, several experts said.
For example, if a potential successor is known to support government spending — which these days is more likely to require monetary support — interest rates could be affected sooner or later, said Peter C. Earl, a senior economist at the American Institute for Economic Research.
“The current FOMC will not change its policy stance in response to a new nominee, but if Biden's Democratic successor is replaced, the policy stance will likely change.” [would] “A victory in November would certainly change the trajectory of Fed policy,” Earle said.
No change at all
Some experts have argued that Biden's departure will not affect the Fed's decision to cut interest rates at its September meeting.
“Regardless of who the Democratic nominee is, I expect there will be some criticism from some parts of the U.S. political world for cutting rates so close to an election, even if the rate cut won't impact or benefit the economy until after the election,” said Timothy Holland, CFA, chief investment officer at Orion.
Holland said the Fed is aware of these trends heading into its September meeting and is prepared to respond by cutting rates or not based on its outlook for the economic situation, regardless of political backdrop.
Chris Mottola, special projects editor and financial analyst at NationalBusinessCapital.com, echoed similar sentiments, saying other factors will also come into play.
“It's unlikely we'll see a big impact anytime soon,” he said. “Higher unemployment and inflation will be the main determining factors.”
As for what will happen to Fed Chairman Jerome Powell, whose term expires in 2026, Holland said the president can fire him, but only for cause.
“Regardless of the presidential nominee or the outcome of the presidential election, we expect Chairman Powell to complete his term,” Holland added.
Editor's note on election coverage: GOBankingRates is nonpartisan and strives to provide objective coverage of all aspects of the economy and balanced reporting on politically focused financial stories. More coverage on this topic can be found at GOBankingRates.com.
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This article originally appeared on GOBankingRates.com: 3 Implications for Interest Rates If Biden Drops Out of the Presidential Election