Stuart Robertson is the CEO and President of ShareBuilder 401k, a technology forward 401(k) provider for small- to mid-sized companies.

Our recent survey showed that 52% of small business owners are holding off on investments in their business until after the presidential election. However, this may be giving too much credit to any administration when it comes to the economy and market growth.

Given the importance for every business to continue to maintain and grow its business, here is some background and historic context to help any size business move forward with confidence and a better understanding of our government’s impact on the economy and markets.

Examining The Federal Reserve’s Functions

The Federal Reserve (the Fed), an independent agency of the United States government, wields immense power over the nation’s economy. While the president often takes credit for economic successes or failures, the reality is that the Fed’s decisions have historically had a far more direct and immediate impact.

The Fed manages monetary policy, which involves managing the money supply (the U.S. dollar) to achieve economic objectives, and the lowering and raising of interest rates. These changes can spur or moot economic growth (GDP) as well as help to manage or increase inflation.

All these levers impact the markets and 401(k) investment portfolios. Generally, the Fed is working to keep inflation reasonable and enabling the U.S. economy to grow at a healthy, steady pace. It is no easy task, but one that, over time, has had a positive impact on our country.

Political Rhetoric And Economic Reality

As we approach the 2024 election, both candidates and their supporters claim that they will improve the economy as well as lower inflation, which has thankfully been dropping this year. However, managing fiscal policy requires the agreement of Congress to approve budgets, change tax regulations and/or invest in our country.

You may be surprised to know that since President Lyndon Johnson, the economy has performed slightly better when a Democratic President is in office than a Republican, and if you go back to Eisenhower, it is slightly better when a Republican is in office than a Democrat.

The main thing to take away is that due to our governmental processes, neither of our Presidential candidates will likely have a materially different impact than the other on the economy and 401(k) investments. Congressional houses are often split between Democratic and Republican control, and to get any major fiscal policy change approved will require compromise, which takes time, if it gets completed at all. Further, it can take years to see the impact of any fiscal change.

The Fed’s Role And Independence

The Fed’s moves have a far faster and often more impact in growing our economy, spurring business development and higher 401(k)s. The Fed’s primary tool for influencing the economy is interest rate policy. The Fed can encourage or discourage borrowing and spending by raising or lowering interest rates. When interest rates are low, borrowing money becomes cheaper, stimulating economic activity. Conversely, borrowing becomes more expensive when interest rates are high, slowing down the economy. These decisions are crucial for managing inflation, unemployment and overall economic growth.

Despite the Fed’s pivotal role, I find that many Americans remain unaware of its influence and give more credit to the president. This lack of understanding is often fueled by media portrayals and political rhetoric that tend to oversimplify economic issues and assign credit or blame to the president.

For example, during economic prosperity, the president may receive praise for his leadership, even though the Fed’s policies may have played a bigger role in creating favorable conditions. Conversely, during economic downturns, the president may be blamed for failures, while the Fed’s actions, such as combating inflation by raising interest rates, may have contributed to the economic slowdown. As inflation has cooled over the past year, the Fed has become comfortable with the data and made 0.50% cut to interest rates in September.

Some may perceive that the president has notable control over monetary policy by the political nature of the appointment process for Fed governors. While the President appoints Fed governors, their terms are relatively long, often spanning the presidential terms of both parties. Further, the Fed’s decisions are intended to be independent of political pressures. This independence is crucial for maintaining the Fed’s credibility and ensuring its policies are based on economic fundamentals rather than political considerations.

Implications For Business And Investments

What does this mean for your business and your 401(k)? Due to the long nature of fiscal policies, I believe it’s important not to delay any investments that can grow your business, with the possible exception of an “optional” bank loan you may be considering.

If rates continue to lower, and you can wait a quarter or two for a non-critical investment, you may benefit from lower interest rates on a loan. However, if there is an immediate opportunity for your firm, it’s probably best not to wait and to get the loan or funding needed. And when it comes to your 401(k) and investments, it’s wise to stay with your investment strategy and invest for the long term.

In conclusion, the Federal Reserve plays a vital role in shaping the nation’s economy, which often directly impacts markets through its monetary policy decisions and interest rate adjustments. While the president will work to gain support for his or her fiscal policy strategy, it will likely only be partially implemented at best given our checks and balances. Meanwhile, the Fed’s independence and expertise allow it to make monetary decisions that can more quickly and directly impact the economy. Understanding the Fed’s role and decisions is essential for assessing the economy and markets and figuring out how you will want to invest in your business and build savings for retirement.

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