Macro Signposts | 17 September 2024
This week, I asked Libby Cantrill, PIMCO's head of public policy, to guest author Macro Signposts to share an update on the U.S. election. Libby analyzes policy and political risk for the firm and leads U.S. policymaker engagement and policy strategy.
Unless explicitly stated, views expressed do not constitute official PIMCO views.
U.S. Presidential Election: A Close Race Enters the Final Stretch
By Libby Cantrill
With just seven weeks remaining until the U.S. election, the presidential race in key swing states remains too close to call. Last week's debate gained attention from voters, media, and commentators everywhere, but its overall impact remains to be seen. In any case, the next president may very well be working with a divided or very narrowly unified Congress in pursuing a policy agenda in 2025.
Debate aftermath
Some of the post-debate polling is coming in and appears mixed. While national momentum seems to be on Harris' side, with her lead expanding to 1.7% according to RealClearPolitics (RCP), the swing states remain incredibly tight. The most important swing state, Pennsylvania, looks like a dead heat according to RCP, although there has been limited polling there since the debate. Keep in mind that at this time in 2020, Biden was leading Trump by nearly 6 points nationally, yet he only went on to beat him by a narrow margin in the critical swing states.
Regardless of what people think about Harris' and Trump's performances in what may be their only debate, it remains an open question as to how much it will matter, given how calcified many voters' views are. That said, the debate could inform the decisions of the estimated 5%-10% of voters deemed "persuadable" - defined as those who are supporting one candidate but may consider the other, or voters who are truly undecided. We should keep watching the polls, particularly in the swing states, to see what effect the debate had on the race. Look for shifts among persuadable voters, as well as whether Harris gains ground with independent voters and Latino voters, who could be crucial for her chances. In a race this close, any movement can be meaningful.
Also, keep in mind that two of the swing states, North Carolina and Pennsylvania, should start early voting soon, while other swing states - Arizona, Georgia, Nevada, Wisconsin, and Michigan - start early voting in October.
Debate offers (some) insights on policy
The candidates were asked about a range of policy topics, and the answers leaned more toward generalities than detailed governing prescriptions.
On the economy: Harris discussed her vision for an "opportunity economy," which would include a $6,000 child tax credit (up from the current $2,000), a $50,000 tax deduction for small businesses, and policies aimed at creating 3 million new housing units. However, Harris was not explicit about the specifics of those housing policies. Previously, she has mentioned a $10,000 first-time home buyer credit and an expansion of the affordable housing tax credit. Trump, when asked about the economy, talked briefly about tariffs but focused extensively on immigration. He concluded by asserting that he "created one of the greatest economies in the history of our country" and that he will "do it again and even better."
On healthcare: Harris was asked about her previous support for Medicare for All, but she did not directly answer the question. Instead, she leaned into her support for the Affordable Care Act (ACA) and discussed the Biden administration's policy of allowing Medicare to negotiate drug prices for certain drugs and capping the price of insulin. She also highlighted Trump's unsuccessful attempts to overturn the ACA. In response, Trump described the ACA as "lousy" and stated that it is "still not that good today," but he indicated that he would only replace it if he could find a cheaper and better solution. When pressed for details on what that may be, he said he had "concepts of a plan," but provided no specifics.
On energy and fracking: There were 11 mentions of fracking in the debate, an acknowledgment of the importance of the issue in the critical swing state of Pennsylvania, where the debate was held. Harris distanced herself from the policy position she staked out during the 2020 cycle, when she said she would "absolutely support a federal ban on fracking." In this debate, she reversed that position, asserting not only her support for fracking but also celebrating that the Biden administration has overseen the "largest increase in domestic oil production in history." She emphasized the need for the U.S. "to invest in diverse sources of energy so we reduce our reliance on foreign oil." In other words, it appears Harris no longer supports the Green New Deal. Trump retorted that "[Harris] will never allow fracking in Pennsylvania" and that she "has supported a fracking ban for the past 12 years."
On immigration: There was a lot of talk about immigration and the southern border throughout the debate. Trump reiterated his views on the large number of immigrants that "she and Biden let into our country," asserting that many are violent criminals and that "we have to get them out fast." Harris said that she would urge Congress to pass the failed bipartisan immigration bill from earlier this year, which she and many Republicans claim that Trump "killed" because he "preferred to run on a problem instead of fixing a problem."
On Ukraine: Trump said he would end the war between Russia and Ukraine "before even becoming president," while Harris discussed the Ukraine conflict in the broader context of defending democracy (a message that resonates only somewhat with voters). She also asserted that "dictators and autocrats are rooting for [Trump] to become president" because "they can manipulate [him] with flattery and favors." In response, Trump stated, "[The conflict] wouldn't have happened with me. The leaders of other countries think that Biden and Harris are weak and incompetent."
On the Middle East conflict: Trump did not provide an in-depth discussion of his plans regarding the conflict in the Middle East, but he asserted that "Israel will be gone in two years" if Harris is elected. In her comments, Harris tried to balance her support for Israel with the acknowledgment that "far too many innocent Palestinians have been killed." She went on to say that "we must chart a course for a two-state solution. And in that solution, there must be security for the Israeli people and Israel and in equal measure for the Palestinians."
Remember: The reality is that, regardless of who wins, the next president will likely be navigating a divided Congress or a very narrowly unified Congress, which will put guardrails on what can get done - so campaign rhetoric may be quite different from policy reality. With that said, we expect deficits to remain high - 6%-7% of GDP per year - regardless of who is elected, which will have implications for the long end of the U.S. Treasury yield curve over the longer-term horizon.
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