Federal Reserve’s policymakers believe that the current economic conditions may change drastically after the election.
Representatives of the central bank have warned that despite the relatively calm state of affairs, it would be unwise to count on positive changes in the US economy. The unprecedented level of unemployment, uncertainty about the second wave of the COVID-19 pandemic, and debatable election results are dragging the economy down.
The day after the presidential election, the Fed is planning to start a two-day meeting. Many market participants do not expect any sudden moves from the regulator. The Fed is highly likely to maintain its current monetary policy. Besides, the central bank has no reason to revise its current policy thanks to strong economic indicators that have not changed much since the last meeting.
Investors are sure that the winner will not be determined by Thursday. At the same time, they have priced in the victory of Democratic presidential nominee Joe Biden and his ambitious plan to revitalize the economy. According to experts, if this scenario does not come true, markets are likely to fall under high volatility.
If the election results are disputed, the situation may worsen. Fed Chairman Jerome Powell will have to calm the market and mitigate the uncertainty.
Apart from the current risks, after the election, the central bank will have to make a number of decisions, which mainly relate to the stimulus measures. Most emergency support programs expire on December 31, 2020. Next year will show whether the economy can cope with the consequences of the pandemic without the help of the Federal Reserve.
Moreover, the victory of Joe Biden can trigger an explosion of inflation, which the regulator will have to deal with. Experts at Goldman Sachs are sure that Biden’s victory in the election could lead to additional budget expenditures of $2 trillion. If so, the Fed will raise the interest rate in 2023, two years earlier than expected.
