During elections, especially presidential elections, there is a lot of uncertainty which boils over to various aspects of the economy including the availability of funds. History has shown time and again that elections have a huge influence on the economy. Investors and consumers alike usually hedge their investment and spending decisions on their predictions of the election outcome. In most cases, it is the policies of the candidates running that provide a basis for these decisions. All this ultimately charts the way for how the economy performs, and in this case, the availability of funds during an election year.
Read on below to find out more about how elections affect the availability of funds.
The Federal Interest Rate
Before we delve deeper into elections effect to availability of funds, we have to answer the question of what directly affects the availability of funds in the economy. The Federal Interest Rate usually sets the bar for other banks in the economy; directly affecting the availability of funds. As such, when this rate goes up, banks raise their interest rates; the opposite being true in most cases. When banks raise their interest rates, they in turn force consumers and other players in the economy to reduce their uptake of credit causing a decrease in the availability of funds.
Taking the above into perspective, it is clear to see that the Federal Reserve has a direct influence on the availability of funds in any given year.
So what about election years? The same holds true; it is up to the Federal Reserve Bank to set the Federal Interest Rate regardless.
However, there is more to this story during an election year.
Another important factor that affects the availability of funds in the economy is investments. Investors usually inject money into the economy in furtherance of their business goals. During an election year, it is common for investors to hold back their investment decisions until after the election. This is done as a means of reducing the level of uncertainty they face given the uncertain political future. This is especially the case where the economic policies of the candidates differ greatly from each other, creating distinct opportunities and risks.
Candidates And Their Policies
Different election candidates usually have different policies meant to help them deliver their campaign promises. Ultimately, there are two general monetary policies adopted by candidates, expansionary or contractionary. The former refers to loosening up monetary controls to increase funds in the economy, while the latter has the opposite effect.
Where investors and consumers believe that the candidate with an expansionary monetary policy is likely to win, they may spend more, increasing the availability of funds, while the opposite is true where they believe a contractionary monetary policy is likely to come into force.
As you can see, elections can have different effects on the availability of funds in the economy. These effects usually hinge on the level of political uncertainty created by the elections.
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