The world's most accurate economist predicts the election outcome and its potential shock effect on 10-year Treasuries
- Christophe Barraud predicts that US growth will accelerate after the election.
- His forecast takes into account election results, control of Congress and economic impact.
- His method uses economic data, backtests and poll-betting markets to make precise predictions.
No one can predict the future for sure. But when it comes to forecasting the economy, Christophe Barraud has an impressive track record.
Bloomberg Markets Securities has ranked Monaco's chief economist and strategist as the top US forecaster every year except once since 2012. In the quarterly position, Barraud regained the top spot for the third quarter of 2024.
Right now, his eyes are on the US election, with its high stakes and wide range of economic prospects. This is a tight race with two very different candidates who will produce different policy outcomes. Perhaps the bigger question than who the next president will be is how much power they will hold; No matter how small or large they may seem, policies are difficult to pass without a majority in Congress.
Barraud expects U.S. growth to accelerate after the results come in, and regardless of who is elected, he said in an interview. That's because uncertainty has fueled growth as corporations put off big decisions on capex and hiring. Additionally, numerous adverse events including union strikes and hurricane-like weather put a damper on things.
Overall, he said US GDP growth would be stronger than consensus forecasts. This means that the expected rate of 2.6% for 2024 will come to 2.7% and the consensus of 1.8% for 2025 will be closer to 2.1%.
But the increase could be different depending on how Washington harvests and harvests next year. Here's how.
Barraud's election predictions – and his likely outcome
In the first scenario, where Vice President Kamala Harris wins with a divided Congress, not much is likely to change on the economic front. Therefore, expect the status quo, he said.
In the second scenario, former President Donald Trump wins, but Congress is divided. It would limit the ability to cut taxes for corporations and households. Therefore, he will likely focus his efforts on foreign policy, meaning everything related to trade restrictions and tariffs could be implemented sooner than expected, Barraud said. The result will hurt global growth. In the short run, this would be neutral to US GDP. However, in the long run, as countries retaliate, this could backfire and slow the US economy.
The third scenario is a Trump victory with a Republican sweep Barraud believes the most likely outcome. He expects Republicans to take the Senate; House that may be a toss up.
If Trump wins a majority, it will enable him to implement tax cuts for corporations and households. This may make him focus more on domestic policy rather than foreign policy. In the short term, this will have a positive impact on US economic growth, generating a GDP boost of between 2.1% and 2.3% in 2025, he said.
However, there is one big problem: Barraud's heavyweight clients, which include big banks, hedge funds and pension funds, are increasingly asking him about the trajectory of the ballooning US deficit. At the heart of that concern is how big the deficit could be if Trump is elected and implements tax cuts resulting in a US fiscal deficit, and how that could affect 10 years out.
For that, he has few modeling projections. In the event of a Trump victory, he expects an initial shock jump in the 10-year yield to at least 4.5% based on where the yield is today, around 4.23%. If he doesn't get a majority in Congress, over the long term, yields could jump an additional 15 basis points to 4.35%, based on where they are today. If there is a Republican sweep, it will gradually rise to 5% as investors seek higher risk premiums. This would be especially the case if he reduced immigration in a healthy labor market, leading to more inflation.
The 10-year yield traded at 5% a year ago and earlier in 2007.
If Harris wins with the Dividend Congress, yields could fall further from where they are, he said. Because the market has already priced in a Republican win. So first, it will be rectified, he added.
But what makes Barraud so certain of his predictions, even when his track record is taken into account?
His secret sauce is not his personal opinion or high-level perspective. When asked “why” anything is expected to shift, he smiled and said it was the model's output.
Like a quant trader, Barraud's calculations are built on a three-step process that involves gathering the latest and greatest economic, financial and satellite data, determining key signals based on backtests, and then combining inputs from additional models to challenge assumptions. to reveal Risk, and output tight. This time, election forecasting involves monitoring multiple poll-betting markets with the highest user volume to gauge the outcome of the election.