The Fate of the US Dollar Hangs in the Balance as Election Day Looms
As the 2024 presidential election approaches, analysts at JPMorgan Chase & Co. are warning that the outcome could have a profound impact on the value of the US dollar. Depending on who takes the White House and which party controls Congress, the dollar could either soar or plummet in value.
A Republican Sweep Could Send the Dollar Soaring
If Donald Trump returns to the presidency with a Republican-controlled Congress, JPMorgan predicts that the dollar could surge by as much as 7.3%. This would be driven by Trump’s aggressive trade policies, including the threat of hiking tariffs on Chinese imports to 60% and introducing a 10% tariff on all US imports. According to JPMorgan, this tariff-heavy approach could bolster the dollar significantly.
The Impact on Currency Markets
In a “Republican sweep” scenario, the dollar is expected to rally significantly, with the trade-weighted dollar index projected to gain 7.3%. This would lead to the greenback strengthening against other major currencies, including the Swedish krona (SEK) and the euro (EUR).
On the other hand, if Kamala Harris wins with a divided Congress, JPMorgan expects the dollar to experience its steepest decline, with the trade-weighted dollar index potentially dropping by 5.4%. This outcome would likely lead to a weaker dollar as trade tensions ease and economic priorities shift.
The Tariff Effect on Inflation and GDP
Economists at JPMorgan estimate that the tariffs imposed during Trump’s first term raised inflation by about 0.3% and shaved 0.4% off GDP growth. However, analysts warn that a second Trump administration could cause even greater economic disruptions if tariffs are ramped up further.
The Potential for Higher Interest Rates
In a worst-case scenario, where both a 60% tariff on Chinese goods and a 10% universal tariff are imposed, inflation could spike by 2.4%, putting significant pressure on American consumers and businesses. This would likely force the Federal Reserve to shift back to a more hawkish stance, reversing any plans to ease monetary policy. Higher interest rates would be necessary to counteract the inflationary impact of tariffs, which could create a stronger monetary policy divergence between the US and other economies.
Investment Opportunities in a Changing Interest Rate Environment
The changing interest rate environment has created an incredible opportunity for income-seeking investors to earn massive yields. Certain private market real estate investments are giving retail investors the opportunity to capitalize on these high-yield opportunities. For instance, the Ascent Income Fund from EquityMultiple targets stable income from senior commercial real estate debt positions and has a historical distribution yield of 12.1% backed by real assets. With payment priority and flexible liquidity options, the Ascent Income Fund is a cornerstone investment vehicle for income-focused investors.
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