From Investing.com: 2024-05-18 05:21:02

Despite elevated interest rates, the economy remains resilient, with fiscal policy stimulating growth. Evercore ISI notes that fiscal policy has pushed up the short-run neutral rate, but the impulse is expected to moderate over the next 12-18 months. Current estimates suggest fiscal policy is boosting the economy by 0.7% GDP relative to 2019.

Analysis shows that to offset fiscal stimulus, the Fed may need to raise long-term interest rates by 25 basis points. Approaches like the Hutchins Center measure and the optimal control model indicate that 70-100bps of rate cuts may be needed by the end of 2025 to counter fading fiscal support and declining short-run neutral rates.

The impact of the U.S. elections on fiscal policy is also considered in the report. Trump’s tax bill is set to expire in 2025, with implications on interest rates based on whether Trump or Biden wins. Biden’s plan to partially repeal the Tax Cuts and Jobs Act could lead to a fed funds rate 25bps lower than under Trump.



Read more at Investing.com: Evercore ISI offers outlook for fed funds rate in each scenario By Investing.com