The Presidential Election impact on US Interest Rates

When you take out a home mortgage or auto loan, the lender normally sells your loan into the bond market (see illustration below).  This allows lenders to continuously replenish their available funds and loan out more money.  This also gives investors in the bond market the ability to buy safe investments (bonds) that produce a predictable source of income from the interest payments that you make each month.

In the financial market, bonds are generally considered to be a safer bet than stocks.  When the financial markets are fearful, or when there is negative economic news, investors tend to buy bonds.  This drives up the demand for bonds.  The bond investor is willing to accept a lower rate from the lender, and the lender can charge you a lower rate on your loan.

On the other hand, when the financial markets are optimistic, or when there is positive economic news, investors tend to sell bonds.  This drives down the demand for bonds.  The bond investor demands a higher rate from the lender, and the lender charges you a higher rate on your loan.

How will the Presidential election impact long term interest rates?

The financial market believes that a Donald Trump presidency would be more unpredictable than a Hillary Clinton presidency.  This means that if Donald Trump wins the election, demand for bonds is likely to increase, and interest rates could go down in the near term.  On the other hand, if Hillary Clinton wins the election, demand for bonds is likely to decrease, and interest rates could go up in the near term. 

The financial market doesn’t like uncertainty.  If the election results are contested, or if the market finds any other reason to be fearful, interest rates could go down. 

Short-term interest rates: credit cards, business loans, home equity lines of credit

Short-term interest rates are not really impacted by the bond market.  Instead, they are impacted by the Federal Reserve. Most economists believe that the Fed will start increasing short-term interest rates again in December, 2016.  This means that interest rates on credit cards, business loans and home equity lines of credit could start going up at that time. 

This means that if you have other debts, this may be a great time to consider a debt consolidation loan.

Contact me for further info on any of these topics or if you’d like to discuss your specific situation.