US election countdown

With just 18 days until Election Day, Trump and Harris remain in a dead heat. We continue to expect that a Harris victory is likely to result in a divided government due to Republican advantages in the Senate. If Trump wins, a Republican sweep is slightly more likely than a divided government due to tight races in the House of Representatives.

A Republican sweep would encourage America First reflation trades due to tax cuts and higher spending, while a Trump win with a divided government would imply trade war 2.0 with potential growth downside not offset by fiscal stimulus. A Harris win with a divided government would largely represent continuity, while a Democrat sweep would lead to higher taxes on corporates and high-income households, but also higher social spending.

Trump's policies on taxes, trade, and immigration are expected to be more inflationary than those of Harris. We expect increased macroeconomic uncertainty and a more combative stance on trade, with higher tariffs and restricted labour supply.

A benign moderation in the labour market and a soft landing in the economy remain our base case, with the Fed lowering rates to neutral, around 3-3.25%, in 2025. However, a Trump presidency is likely to trigger more hawkish monetary policy and a reassessment of the terminal rate for the cutting cycle.

In this note, we break down the election’s potential impact on the economy and markets, and discuss the current state of play, the timing of election results, and key post-election risks. For a deeper dive, check out our initial election analysis published here.