Special Issue: Rates, Regulation and Policy – What You Need to Know

Special Issue: Rates, Regulations and Politics – What You Need to Know Author: Prabha Natarajan

Good day. My name is Prabha Natarajan, and I am the editor-in-chief of WSJ Professional Products.

This summer was one we’ll remember forever. We have a new Democratic candidate, the presidential race has become truly unpredictable, and it’s become clear that the Federal Reserve needs to start cutting interest rates.

Executives and companies are looking beyond the coming months and planning ahead even as uncertainty continues over the U.S. election and its impact on policies and regulations coming out of Washington.

Predicting how much and how quickly the Federal Reserve will cut interest rates further complicates the task for corporate leaders and investors trying to develop a winning strategy.

WSJ Pro journalists took a closer look at some of these issues and prepared articles that can help you make decisions.

Here’s what you need to know about policies, regulations and rates:

On the political front, tariffs are likely to increase.

Former President Donald Trump said he would introduce new tariffs with a potential 10% tariff on imported goods and a 60% tariff on goods from China. During his presidency, Trump began a new era of tariffs with tariffs on a wide range of goods, especially from China.

Vice President Kamala Harris has shown no willingness to deviate from President Biden’s trade policies, though she has criticized Trump’s tariff plan. The Biden administration has kept most of Trump’s tariffs in place and then added more on Chinese steel, semiconductors and electric vehicles.

Professional opinion: Both Democrats and Republicans have used tariffs as a tool to address trade and geopolitical issues, and that’s unlikely to change. It will continue to affect the sourcing and manufacturing decisions of American companies, many of which are pulling out of China or planning to do so. Read more.

Corporate Income Tax Rate: What is High and What is Low?

Harris supported raising the tax rate from the current 21% to 28%.

Meanwhile, Trump recently told executives he wants a 20 percent corporate tax rate and has proposed lowering that rate to just 15 percent.

The pros: With less than three months to go until the election, tax advisers say the big question for company insiders is what rate to model. Their current answer: about 25%. Read more.

Sanctions remain popular

Trump has ramped up his use of sanctions and related tools during his tenure in the Oval Office, particularly against China. But Trump recently said he doesn’t “love” sanctions but has found them useful in the case of Iran.

Harris’ campaign recently tapped Brian Nelson, a former Treasury official who until recently led the department’s counter-illegal finance efforts, to join her team. Observers expect Harris’ approach will at least mirror, and possibly be more rigorous than, that of the Biden administration, which added 1,621 entities and 879 individuals to its sanctions list in 2023, according to the Center for a New American Security.

Pro Take: The zealous use of this tool—a low-cost way to push the U.S. agenda abroad—is likely to remain a permanent feature of American foreign policy, regardless of who wins this year’s presidential election. Read more.

About interest rates

Deal hopes are reviving. Private equity firms are riding a wave of optimism that U.S. interest rate cuts will help shake a long-running dealmaking slump. But analysts warn that lower interest rates alone won’t return private equity to its pre-2022 glory days, and firms still need to learn how to operate without ultra-low interest rates, as a return to the Fed’s near-zero interest rate seems unlikely.

Professional opinion: M&A is likely to return. But it’s unclear whether lower interest rates and cheaper debt will help boost valuations to the point where companies can sell at attractive prices. Read more.

Renewables Boost: A more favorable lending environment could make all the difference for some of the shelved renewable energy projects. Some of these projects have been held up by high borrowing costs, and lowering interest rates could unblock them.

Pro Take: A lasting boost for green projects would require a Goldilocks economic scenario, in which lower borrowing costs don’t square with other concerns, including an unfriendly administration. Read more.

On the regulation of risky rules

As of late May, the Biden administration had issued 273 economically significant rules—more than any of the six previous administrations had managed in their first four years. Regulators have made clear that additional rules are in the works. But many of the president’s most ambitious policies have faced legal and business resistance.

Pro Take: Increasing political polarization combined with Supreme Court rulings on administrative authority are bringing unpredictability to the rulemaking process. Regardless of the election outcome, a wave of legal challenges to some business-oriented regulations will have to work their way through the legal system. Read more.

Can new technology be controlled?

In the U.S., a complex patchwork of laws across states, cities and counties is introducing more detailed rules governing digital privacy, cybersecurity and technologies like artificial intelligence.

This has led to: 19 states passing their own comprehensive privacy laws that companies must comply with.

Since there are no clear guidelines for AI-generated images and videos, companies are creating their own policies on the subject.

Professional opinion: Lawmakers and businesses agree on the need for federal law rather than the patchwork system that is taking shape as more states pass their own laws. States are not stopping at making the rules, they are also taking on the challenge of enforcement.

Bankruptcy law: While Congress has done little to change the bankruptcy system in recent years, the bankruptcy process for businesses and individuals has changed significantly during the Biden administration.

Professional opinion: Some changes are likely to be permanent, like the Supreme Court ruling against OxyContin maker Purdue Pharma, which will make it harder for business owners to resolve mass Chapter 11 lawsuits. But student loan debt relief has a troubled future. Read more.

About us

WSJ Pro Central Banking brings you news, analysis and insights on central banking from WSJ’s global team of reporters and editors.

This article is a text version of a Wall Street Journal newsletter published earlier today.

(END) Dow Jones Newswires

September 3, 2024, 07:16 ET (11:16 GMT)