like the 2024 elections is getting closer, many voters are wondering how those different results will affect them financially. A big question is how the outcome of the presidential election might affect interest rates.

In July, the Federal Reserve chose to hold the federal funds rate steady 5.25% to 5.50% AFTER increasing it 11 times between March 2022 and July 2023. When the federal funds rate is high, it raises the cost of borrowing for businesses and consumers.

The sitting president does not have a direct influence on interest rates, but they can influence them indirectly through their actions and policies. Let's look at how each candidate's policies could affect the financial landscape going forward.

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How does the President affect interest rates?

The Federal Reserve intends to hold inflation around 2%and it does this by raising or lowering interest rates. When inflation falls too low, the Fed lowers interest rates to stimulate the economy.

Likewise, if inflation rises too much, the Fed raises interest rates to make it harder for banks to borrow money from each other. When interest rates are high, business and consumer spending tend to slow, hoping to lower inflation at the same time.

The Federal Open Market Committee (FOMC) sets the federal funds rate, which is the target interest rate range. However, there are several ways the President can influence interest rates:

• Removing the Fed Chair: According to Federal Reserve ActThe president can remove the Fed chair “for cause.” Some legal scholars have taken this to be abuse, not political distinction, but the statute is ambiguous at best.

• Appointment of members: The President may appoint the Chairman of the Federal Reserve and appoint members of the Board of Governors. However, each term lasts 14 years, and the Senate must confirm each appointment, so the President's authority is still quite limited.

• Express concerns: The President can disagree with the decisions of the Federal Reserve and express them publicly. However, they cannot stop the Federal Reserve from raising interest rates.

It is also important to note that there are 12 federal regional banks located throughout the country. The president has no say in who runs these banks.

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Election results that may affect interest rates

of The policies of the President and actions may indirectly affect the Federal Reserve's decision to raise or lower rates. There are two main candidates in the upcoming 2024 election – let's see how a win by either party could affect interest rates.

Kamala Harris wins:

When President Biden was running for re-election, the general consensus was that a Biden victory would result in almost no change to interest rates. But in July, Biden dropped out of the 2024 race and Kamala Harris now he is the democratic candidate for president.

It's hard to predict how a Harris presidency will affect interest rates, especially since she hasn't fully outlined her economic policies. Harris urged tax reduction on lower- and middle-class families and has promised to roll back Trump's tax cuts if he wins the White House. And like Biden, Harris supports investment in green energy and infrastructure.

As a senator, Harris voted against confirming Jerome Powell as chairman of the Federal Reserve in 2018. Some have speculated that she is unlikely to reappoint him when his term ends.

Former President Trump wins:

If Donald Trump is elected in November, he is likely to extend the tax cuts through at least 2027. His policies tend to favor lower taxes and deregulation, which benefits businesses and could increase demand for business loans. However, there is speculation that his plan to cut taxes may be drive higher inflationcausing the Federal Reserve to raise interest rates to fight inflation.

During Trump's tenure, there were significant tensions between him and Federal Reserve Chairman Jerome Powell. Many people have wondered if Trump will do this fire Chairman Powell if he is given a second term. Chairman Powell's term ends in 2026 and the former President has stated that while he will allow Powell to to finish his termwill not rename it.

The Federal Reserve has already shown that it can reduced rates in September. However, if inflation becomes a concern or starts to rise again, the Fed may maintain or even raise interest rates.

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How to prepare for the election season

Election seasons it can be stressful as many people wonder how the outcome will affect their economy and livelihood. Fortunately, data shows that the market tends to perform well during an election year.

Even if the election result creates some volatility, the impact is likely to be short-lived. Fundamental drivers of the economy, such as inflation and Federal Reserve policies, are likely to have a greater impact on interest rates than the election itself.

For example, JP Morgan found that during the 2020 election, the end of gridlock affected the market more than the views of either presidential candidate. Likewise, in 2008, the financial crisis was the main driver of the economy, not the election.

Inflation is easing and unemployment is at historic lows, so we're likely to see a possible rate cut or two in 2024, regardless of who wins the presidency. But no matter what happens, there is never a perfect time to enter equity. If you have an opportunity to grow your business, don't let fear of the election pass you by.