A Biden win and a ‘blue wave’ outcome could mean the Fed hikes rates sooner than expected, a Morgan Stanley portfolio manager says

• A Joe Biden win and a ‘blue wave’ in the upcoming US election could spur a hike in Federal Reserve rates earlier than anticipated, a Morgan Stanley portfolio manager told CNBC on Tuesday.
• A blue-wave win could also unleash more fiscal stimulus than under a Trump administration, Jim Caron, a head of the global fixed income team at the firm said.
• The first rate hike could be pushed forward by a year to 2023 instead of 2024 depending on how taxation policies under a Biden administration would work, he said.
• “I actually think there’s going to be more questions than answers after the election than there is right now,”  the fund manager said.
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A Joe Biden win and a Democratic sweep in the US elections could spawn a hike in interest rates earlier than expected, Jim Caron, a Morgan Stanley portfolio manager told CNBC on Tuesday.

The central bank’s benchmark rate sat at roughly 1.5% before it was cut to near zero in March, where it is expected to stay until 2024. But if Biden wins the election next month, the first increase in interest rates could be brought forward by a year to 2023, depending on how lawmakers balance out fiscal stimulus with taxation, Caron said.

A blue wave, which would entail a Democratic landslide in the upcoming election, could also bring about more fiscal stimulus than another Trump administration would, he said.

Although the US economy was already expected to rebound in 2021, a Biden-led victory would boost growth prospects beyond 2021, as activity gathers pace alongside a resurgence of cash flow, Caron noted on CNBC’s “Squawk Box Asia.”

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“That means the growth impact could go into not just 2021, but also 2022,” he noted.

“The effect that this has though — that we need to be wary of — is that this could bring the first rate hike. Nobody wants to talk about rate hikes right now, but this could bring the first rate hike by the Fed in from 2024 to 2025 to maybe 2023 to 2024,” he said.

Investors are wary of Joe Biden’s planned capital-gains tax increase, and could sell stocks fairly heavily, if they anticipate a drop in corporate profits.

Caron pointed out people are taking a blue-wave victory for granted and are expecting to have immediate clarity on what to expect on election day.

“I actually think there’s going to be more questions than answers after the election than there is right now,” he said.

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