Webinar

Fall 2024 Post-Election Webinar

Gauging the market impact of election results.

Key takeaways

  • Inflation is down considerably from its mid-2022 peak of more than 9%.

  • The Consumer Price Index rose modestly to 2.6% for the 12 months ending in October.

  • In September and November, the Federal Reserve implemented interest rate cuts, with more cuts likely in the months to come.

Inflation remains persistently above the Federal Reserve’s target 2%. For the 12-months ending in October, the Consumer Price Index (CPI) ticked up slightly to 2.6%, compared to 2.4% a month earlier.1

Chart depicts inflation as measured by the Consumer Price Index from June 2022 - October 2024.
Source: U.S. Bureau of Labor Statistics, U.S. Bank Asset Management Group, October 2024.

While headline inflation has improved considerably from peak levels two years ago, the latest inflation report came days after an election where a large percentage of voters identified higher living costs as their most important issue. According to surveys, those most concerned with inflation tended to vote for the election's winner, Donald Trump.3

 

“Core” inflation stable, but still elevated

When eliminating the volatile food and energy sectors, inflation at the “core” level remains higher than the broader CPI. The core inflation calculation still includes, among other categories, costs for housing, transportation and medical care. October’s inflation report showed core inflation growing by 3.3% over the previous 12 months, a relatively stable reading compared to the previous five months.

Chart depicts trailing 12-month Core Consumer Price Index (CPI), a measure of inflation, 2021 - October 2024.
Source: U.S. Bureau of Labor Statistics, U.S. Bank Asset Management Group, October 2024.

The biggest price changes in the past 12 months occurred in transportation services (+8.2%) and shelter (+4.9). By contrast, energy costs were nearly 5% lower than a year ago (including a 12% drop in gasoline prices) while food prices rose just 2.1% over the same period.1

 

Fed signals less inflation concern

Inflation has been the Federal Reserve’s primary monetary policy focus. Soaring inflation prompted the Fed to raise interest rates by more than 5% in a little more than a year, ending in 2023. In September 2024, the Fed cut the short-term federal funds target rate (that guides lending rates used by banks for overnight loans to one another and tends to influence consumer interest rates on such things as credit cards, mortgages and auto loans) by 0.50%. Just after November’s election, the Fed cut rates again by 0.25%. The policymaking Federal Open Market Committee (FOMC) meets again in December. With the release of October’s inflation report, markets reflected increasing confidence that another 0.25% rate cut will come out of December’s meeting.4

Chart depicts rate cut expectations for the Federal Reserve’s next meeting of the Federal Open Market Committee (FOMC) in December 2024, as of 11/13/2024.
Source: CME Group, “FedWatch,” November 13, 2024. Indicates the likelihood of a Fed rate cut as reflected in 30-Day fed funds futures prices.

The Fed targets 2% inflation, as measured by the annual change in the personal consumption expenditure (PCE) price index, a measure of spending on goods and services.5 PCE was steady in September, with the headline PCE index at 2.2% for the previous 12 months. The narrower “core” PCE (excluding the volatile food and energy categories) held steady at 2.7%, the same as the prior two months.6 Both numbers remain above the Fed’s long-term 2% target.

“Though core inflation prices remain higher than overall inflation, the Fed can live with that assuming, as is the case for now, that core costs remain level,” says Rob Haworth, senior investment strategy director for U.S. Bank Asset Management. Notably, markets lowered expectations for 2025 Fed rate cuts, with renewed inflationary concerns tied to new policy proposals from the Trump campaign including the implementation of higher tariffs.

“Though core inflation prices remain higher than overall inflation, the Fed can live with that assuming, as is the case for now, that core costs remain level,” says Rob Haworth, senior investment strategy director for U.S. Bank Asset Management.

Fed Chair Jerome Powell in early November stated that “the election will have no effects on our policy decisions.” Powell added, “In considering additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook and the balance of risks. We are not on a preset course.”7

 

Inflation’s recent history

Over the past thirty years, living costs as measured by CPI have grown by an average of 2.6% per calendar year, exactly the reading for the 12-months ended October 2024. It remained below 4% per year until 2021, when inflation surged. It now stands at more historically typical levels.2

Inflation trends as measured by the Consumer Price Index 2000 - October 2024.
Source: U.S. Bureau of Labor Statistics, U.S. Bank Asset Management Group. 2024 data point based on Consumer Price Index for 12-month period ending October 2024.

Bond markets de-couple from inflation

Historically, bond yields tend to track inflation’s direction. While over the course of 2024 inflation has trended lower, yields on 10-year U.S. Treasury bonds recently moved higher. After the Fed’s initial rate cut in mid-September,10-year Treasury yields rose from 3.63% to 4.43%.8 “At the moment, improved real economic growth expectations are likely driving bond yields higher,” says Haworth. “Concerns about a growing federal budget deficit may also contribute to higher rates, under the assumption that the Treasury will have to issue more bonds to fund growing deficits.” Investors may demand higher yields to absorb an expanding Treasury bond supply.

 

How inflation can impact your portfolio

As inflation leveled off in 2023 and 2024, equity markets responded favorably. In late 2024, the S&P 500 is on track to gain 20% or more for the second year in a row. Investors may want to consider an overweight allocation to equities relative to fixed income investments, while retaining a neutral weight in real assets.

At the same time, it’s important to remember that a consistent long-term strategy tends to work to the benefit of most investors. This likely precludes any dramatic changes to your asset allocation strategy in response to today’s capital market environment.

Be sure to talk with your financial professional about what steps may be most appropriate for your situation.

Frequently asked questions

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Disclosures

  1. U.S. Bureau of Labor Statistics, “Consumer Price Index Summary, September 2024,” October 10, 2024.

  2. Source: U.S. Bureau of Labor Statistics.

  3. Boak, Josh and Thomson-Deveaux, Amelia, “AP VoteCast: Voters who focused on the economy broke hard for Trump,” Associated Press, Nov. 8, 2024.

  4. CME Group, “FedWatch,” November 13, 2024.

  5. Board of Governors of the Federal Reserve System, “2020 Statement on Longer-Run Goals and Monetary Policy Strategy,” Aug. 27, 2020.

  6. U.S. Bureau of Economic Analysis, “Personal Income and Outlays, September 2024,” October 31, 2024.

  7. Federal Reserve Board of Governors, “Transcript of Chair Powell’s Press Conference,” Nov. 7, 2024.

  8. Source: U.S. Department of the Treasury, Daily Treasury Par Yield Curve Rates.

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