I’m an Economist: Here Are My Predictions for Interest Rates If Biden Wins the Election
Written by
Laura Beck
Edited by
Levi Leidy
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With Biden’s potential reelection on the horizon, economists are closely watching how a second term could impact interest rates across the economy. From the housing market to big initiatives like infrastructure and climate change programs, interest rate forecasts are top of mind.
To get their predictions, GOBankingRates spoke to Aaron Cirksena, founder and CEO of MDRN Capital, as well as Dennis Shirshikov, adjunct professor of economics at CUNY, and head of growth at GoSummer.
A Gradual Rise To Tackle Inflation
One key area all the financial pundits are honing in on? Two words: interest rates.
Under Biden’s first four years, the Federal Reserve kept rates pretty low to help with the pandemic recovery. But as the economy keeps chugging along, most expect the Fed to start slowly ratcheting up those rates.
“If President Biden wins the election, we might see a gradual increase in interest rates as his administration continues to focus on economic recovery and controlling inflation,” said Shirshikov.
Federal Reserve Independence Remains Intact
Biden and his team have repeatedly said they respect the Fed’s independence in setting monetary policy based on economic data, not political whims.
As Shirshikov puts it, “The Federal Reserve, under his guidance, would likely aim to balance economic growth with inflation control, leading to a steady rise in interest rates over time.”
Incentives for Green Investments
Biden’s administration’s will most likely include an emphasis on climate change initiatives and green energy.
“Biden’s administration has been vocal about climate change and sustainable investments,” Shirshikov shared. “This focus could lead to favorable interest rates for green projects and investments in renewable energy.”
We’re talking lower rates on loans for things like solar installations, electric vehicle purchases and sustainable construction. It’s all about incentivizing capital to flow towards eco-friendly projects and technology.
Infrastructure Spending Increases Borrowing
Of course, the other cornerstone of Biden’s economic agenda has been the huge infrastructure push to rebuild America’s crumbling bridges, roads, utilities, you get the picture. And if he stays that course in a second term, you can expect that to move the interest rate needle as well.
“If Biden’s administration continues its current economic policies (significant spending on infrastructure and social programs), we might see increased government borrowing,” said Cirksena. “As a result, the Federal Reserve might choose to maintain higher interest rates, especially if the economy shows growth and inflation remains above the Fed’s target.”
Ambitious infrastructure overhauls mean the government borrowing big bucks, which could put upward pressure on rates overall to keep inflation in check and attract lenders. But at the same time, all those construction projects and economic juice from the investments could give the Fed room to ease up a bit too.
Housing Tailwinds From Homebuyer Assistance
Let’s not forget the potential impacts for the housing market in a Biden second term. His team has made expanding homeownership through assistance programs for first-time and lower-income buyers a major priority.
“With a Biden win, we can anticipate continued support for housing and infrastructure development, which might keep mortgage rates relatively low to encourage homeownership and infrastructure projects,” Shirshikov said.
More demand from new homebuyers could get balanced out by efforts to make mortgages cheaper and more accessible. Of course, there’s a lot of factors at play here – but you can be sure the housing market will be feeling those second-term ripple effects regardless.
A Balancing Act for the Fed
At the end of the day, while a lot of this is educated guesswork, the one certainty is that interest rates are going to be solidly in the Fed’s crosshairs if Biden has four more years. Whether it’s slightly higher, holding steady or a mixed bag across different sectors, managing borrowing costs will be pivotal to controlling inflation and maintaining that economic momentum.
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