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Economics

Three reasons why Donald Trump might outperform the polls

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THIS IS AMERICA’S closest presidential contest since at least 2000. With hours to go before the polls close, forecasting models, including The Economist’s, are showing a nearly 50/50 race, because swing-state polls are roughly tied. Thanks to one last batch on the campaign’s final day, our model favours Kamala Harris over Donald Trump by a very narrow margin, giving her a 56% chance of victory. Others show an even tighter race: Split Ticket puts Ms Harris on 53%, and both FiveThirtyEight and Silver Bulletin have her at 50%.

In states where our model gives the leader at least a 90% chance to win, Ms Harris has 226 electoral votes to Mr Trump’s 219. In the remaining seven states, the two are within three percentage points of each other in all state polling averages. Ms Harris is clinging to one-point leads in Michigan and Wisconsin; Mr Trump has similarly small edges in North Carolina and Georgia, and a slightly larger one in Arizona. Nevada and Pennsylvania are a dead heat.

The vice-president’s easiest path to victory is winning the Rust Belt states of Michigan, Pennsylvania and Wisconsin—just as the former president’s task is to break through this northern “blue wall”, as he did in 2016. If Ms Harris loses even one of these states, she would have to pick off a Sun Belt state where Mr Trump is currently in the lead.

And yet the race will probably not wind up as close as polls suggest. Since 1976, state polling averages have missed the final margin between the two nominees by an average of four percentage points. Moreover, when surveys underestimate a candidate in one part of the country, they generally err in the same way in other parts, too. At least a modest nationwide error is likely. Such an error, given how close the polls are, would probably deliver most or all of the swing states, and a decisive electoral-college victory, to whichever candidate benefits.

The chances of a big error may be even larger than usual this year because of evidence that at least some pollsters have been “herding”. This means that, when they get an outlier result, they decline to publish it or adjust their weighting to bring it closer to consensus. To be sure, America’s two most revered pollsters have released some stunning results this year. The New York Times and Siena College put Mr Trump up 13 points in Florida. On November 2nd, Ann Selzer gave Ms Harris a three-point lead in Iowa, which Mr Trump won by eight points in 2020. But the share of polls that put the candidates within a point of each other in the swing states is greater than random chance alone can explain.

Betting markets suggest that Mr Trump is likelier to outperform than is Ms Harris. On real-money exchanges with unlimited stakes, he is currently a 56-62% favourite. Some Democratic pundits dismiss this as “manipulation” by Trump supporters. Such charges are hard to stand up. Mr Trump is favoured on all major markets. Unless Elon Musk himself is propping him up on most of these sites, the prices simply reflect the (dollar-weighted) wisdom of crowds.

Three Trump cards

More convincing reasons can explain the divergence between models and markets. The first is that forecasts that rely mainly on state polling averages, rather than national ones, may be underestimating the “stickiness” of Mr Trump’s advantage in the electoral college. In 2016 and 2020, Democrats fared far better in the national popular vote than in Wisconsin, the state that delivered the decisive 270th vote in both elections. Currently Ms Harris clings to a tiny one-point edge in national polls.

Most of Mr Trump’s gains since 2020 have come from non-white and Hispanic voters, who are concentrated in big, uncompetitive states. State-level surveys support the idea that Republicans will “waste” many more votes this year: Mr Trump has inefficiently narrowed his deficit in New York and expanded his leads in Florida and Texas. None of that will decide the election. But if Ms Harris really does prevail by a single point in the popular vote, Mr Trump would need to retain only a fraction of his four-point electoral-college advantage of 2020 to return to the White House.

The second argument in Mr Trump’s favour lies in early-voting data. In 2020 Mr Trump denounced early and postal voting, allowing Democrats to bank huge leads before election day. This year he has sent mixed messages. As a result, the big gap in early voting that Democrats enjoyed four years ago has shrunk and, in some states, even become a deficit. Only when early-voting numbers started to come in did market prices begin to diverge from polling averages in 2024.

The third and final pro-Trump theory is that he is more likely than Ms Harris to outperform the polls because he did so in each of his past two campaigns. There are good reasons to expect this trend to continue. His supporters tend to distrust the media and universities, which account for most non-partisan public polling. This may make them less likely to participate in surveys. Pollsters use weighting methods to try to overcome this bias. But such efforts fail if Trump voters are less willing to share their views than are others with the same demographic profile.

Three Kam-terarguments

Or is it Ms Harris whom models are underestimating? Democrats offer three strong arguments for this. The first is an alternative explanation for previous polling errors that favoured Mr Trump. In 2016 many pollsters failed to weight their surveys by educational attainment. Because voters who graduated from college are very likely to talk to pollsters, this caused surveys to under-sample Mr Trump’s working-class supporters. By 2020 education weighting was de rigueur, but the incumbent beat his polls again, by an even greater margin.

Trump fans may believe that their man’s backers simply cannot be polled. But the 2020 election took place amid a once-in-a-century pandemic, in which Democrats were far more likely to stay at home, and so had time to participate in surveys, than Republicans were. Polls of the Trump-Biden race taken before covid began came much closer to the final result than subsequent ones did. No such imbalance in free time exists this year.

Most pollsters have also adopted “recall-vote weighting”, adjusting their samples so that the share of people who say that they supported Mr Biden and Mr Trump in 2020 matches the actual result. More respondents generally claim they voted for the winner of the past election than the number who actually did. As a result, recall weighting tends to increase vote shares for the party whose candidate lost last time: in this case, the Republicans. This method makes polls less accurate, but many firms lowballed Mr Trump for two straight cycles. Abundant recall weighting this time may have overshot the mark, which would raise the probability of a polling error in Ms Harris’s favour.

The second argument is that Ms Harris may have an advantage in the turnout battle. During Barack Obama’s two terms, Democrats depended on less reliable voters, and got walloped in midterm elections. But the Trump-era realignment, which has pushed college-educated voters towards Democrats and working-class ones towards Republicans, has reversed this dynamic. Since 2017 Democrats have consistently outperformed in lower-turnout contests. The “top-two” primary in Washington state, a reliable predictor of general elections, suggests a more Democratic national environment than current polls do, for instance.

The third argument is that Mr Trump’s tactics and strategy seem misaligned. He has given himself a tough task by focusing his campaign on appealing to groups with a low propensity to vote, such as young men and non-whites without college degrees. A candidate who is counting on such supporters should, as Mr Obama did, invest in a robust “ground game” to maximise turnout among expected backers.

Yet Mr Trump has outsourced most of this to an untested outfit funded by Mr Musk, called the America PAC. It is true that Hillary Clinton also enjoyed an advantage in field offices and among canvassers in 2016. But Mr Trump benefited from far more support from college-educated white voters that year than he is expected to in 2024.

The arguments are persuasive on both sides. So models are probably right to land around 50/50. But that is assuming the candidate who wins enough states to secure 270 electoral votes will also become president. And, if history is any guide, Mr Trump is unlikely to accept defeat. With six of the nine Supreme Court justices appointed by Republicans, a repeat of 2000—when the court handed the presidency to George W. Bush in an election decided by 537 votes—gives Mr Trump one more potential path back to the White House.

Economics

ECB members say inflation job nearly done but tariff risks loom

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Guests and attendeess mingle and walk through the atrium during the IMF/World Bank Group Spring Meetings at the IMF headquarters in Washington, DC, on April 24, 2025.

Jim Watson | Afp | Getty Images

After years dominated by the pandemic, supply chains, energy and inflation, there was a new topic topping the agenda at the World Bank and International Monetary Fund’s Spring Meetings this year: tariffs.

The IMF set the tone by kicking off the week with the release of its latest economic forecasts, which cut growth outlooks for the U.S., U.K. and many Asian countries. While economists, central bankers and politicians have been engaged in panels and behind-the-scenes talks, many are attempting to work out whether trade tensions between China and the U.S. are — or perhaps are not — cooling.

Policymakers from the European Central Bank that CNBC spoke to this week broadly stuck a dovish-leaning tone, indicating they saw interest rates continuing to fall and few upside risks to euro zone inflation. However, all stressed the current high levels of uncertainty, the need to keep monitoring data, and the high risks to the growth outlook — sentiments also echoed by Bank of England Governor Andrew Bailey in his interview with CNBC on Thursday.

These were some of the main messages from ECB members this week.

Christine Lagarde, European Central Bank president

On inflation and monetary policy:

“We’re heading towards our [inflation] target in the course of 2025, so that disinflationary process is so much on track that we are nearing completion. But we have the shocks, you know, and the shocks will be a dampen on GDP. It’s a negative shock to demand.”

“The net impact on inflation will depend on what countermeasures are eventually taken by Europe. Then we have to take into account the [German] fiscal push by the defense investments, by the infrastructure fund.”

“We have seen successive movements, you know, announcement [of U.S. tariffs], and then a pause, and then some exemptions. So we have to be very attentive… Either we cut, either we pause, but we will be data dependent to the extreme.”

Watch CNBC's full interview with ECB president Christine Lagarde

On market moves:

“When we had done our projections, we anticipated that… the dollar would appreciate, the euro would depreciate. It’s not what we saw. And there have been some counter-intuitive movements in various categories.”

“The German market has obviously been shocked in a positive way by the program soon to be put in place by the German government, with a commitment to defense, with a commitment to a big fund for infrastructure development.”

Klaas Knot, The Netherlands Bank president

On tariff uncertainty:

“If I look back over the last 14 years, in the initial days of the pandemic I think that was comparable uncertainty to what we have now.”

“In the short run, it’s crystal clear that the uncertainty that is created by the unpredictability of the tariff actions by the U.S. government works as a strong negative factor for growth. Basically, uncertainty is like a tax without revenue.”

On the inflation impact:

“In the short run, we will have lower growth. We will probably also have lower inflation. As we also see, the euro is appreciating as energy prices have also come down. So together with the sort of negative factor uncertainty in the short run, it’s crystal clear that it will accelerate the disinflation.”

It's 'crystal clear' that tariffs could hit growth in the short term, ECB's Knot says

“But in the medium term, the inflation outlook is not all that clear. I think there are still these negative factors. But in the medium term, you might get retaliation. You might get the disruption of global value chains, which might also be inflationary in other parts of the world than the U.S. only. And then, of course, we have the fiscal policy coming in in Europe. So this is actually a time in which you need projections.”

On a June rate cut and market pricing for two more ECB rate cuts in 2025:

“I’m fully open minded. I think it’s way too early to already take a position on June, whether it would be another cut. It will fully depend on these projections.”

“I would need to see a more structured analysis of the impact on the inflation profile ahead of us, and only then can I say whether the market is pricing fair or whether I don’t.”

Robert Holzmann, Austrian National Bank governor

On the need to wait for more data and news on tariffs:

“We have not seen this uncertainty now for years… unless the uncertainty subsides, by the right decisions, we will have to hold back a number of our decisions, and hence, we don’t know yet in what direction monetary policy should be best moved.”

“Before looking at data in detail, the question is, what kind of political decisions will be taken? Is it that we will have some tariff increases? Is it that we will have strong tariff increases? Is it that we will have retribution by high counter tariffs?”

We have not seen this much uncertainty for years, Austrian central bank governor says

On the ECB’s April rate cut:

“I think there’s a broad consensus [on rates]. But of course, at the margin, people differ.”

“My assessment is that at this time, it wasn’t clear yet to what extent [tariff] countermeasures were being taken. Because with countermeasures in Europe, prices may have increased. Without countermeasures, quite likely the price pressure is downward. And for the time being, we don’t know yet the direction.”

On the direction of interest rates:

“I think if the recent noises about an arrangement [on trade] were to be true, in this case, quite likely it is more towards the downside than the upside with regard to prices. But this can be changed with different decisions and the result of which, we may even imagine in [the] other direction. For the time being, no, it will be down.”

“There may be further cuts this year, but the number is still outstanding.”

Mārtiņš Kazāks, Bank of Latvia governor

On opportunity from tariffs:

“With all this uncertainty and vulnerability, this is also the time of opportunities for Europe.”

“It’s a time for Europe to grasp all the aspects of being an economic superpower and becoming a really fully-fledged political and geopolitical superpower, and this requires doing all the decisions that in the past, were not carried out fully.”

“This requires political will, political guts to make those decisions, and to strengthen the European economy and assert its place in a global world.”

Global vulnerability an opportunity for Europe, says ECB's Kazāks

On market reaction to tariffs:

“So far it seems to be relatively orderly … but if one looks at the spillovers to Europe, the financial markets are working more or less fine, we haven’t seen spreads exploding or anything like that.”

“But in terms, however, of the macro scenarios, this uncertainty is extremely elevated in the sense that, given the possible outcomes, the multiple scenarios and their probabilities are very similar with the baseline [tariff] scenario.”

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Economics

Trump insists bond market tumult didn’t influence tariff pause: ‘I wasn’t worried’

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US President Donald Trump speaks during a bilateral meeting with Prime Minister of Norway Jonas Gahr Store in the Oval Office of the White House in Washington, DC, on April 24, 2025.

Saul Loeb | Afp | Getty Images

President Donald Trump denied that an aggressive bond market sell-off influenced his decision earlier this month to hold off on aggressive “reciprocal” tariffs against U.S. trading partners.

“I wasn’t worried,” Trump said in a Time magazine interview during which he was asked about financial market tumult after his April 2 “liberation day” announcement.

In the decree, Trump slapped 10% across-the-board duties against all U.S. imports and released list of tariffs against dozens of other nations. The extra levies were based on trade deficits the U.S. had against the respective countries and raised fears about inflation, a potential recession and disruption of long-held trade agreements.

Markets recoiled following the release. Treasury yields initially headed lower but quickly snapped higher. The 10-year yield rose half a percentage point in just a few days, one of its quickest moves ever, as investors also ditched stocks and the U.S. dollar.

Ultimately, Trump issued a 90-day stay on the reciprocal tariffs to allow time for negotiation. But he said it wasn’t because of the market tumult.

Pres. Trump to TIME: Would consider it a total victory if U.S. still has 50% tariffs in a year

“No, it wasn’t for that reason,” Trump told Time in the interview from Tuesday that was published Friday. “I’m doing that until we come up with the numbers that I want to come up with. I’ve met with a lot of countries. I’ve talked on the telephone. I don’t even want them to come in.”

Yields have since moved lower, with the 10-year most recently around 4.28%, about a quarter percentage point higher than its recent low. Trump had said when he made the decision to hold off that the bond market had gotten the “yips.”

“The bond market was getting the yips, but I wasn’t. Because I know what we have,” he said. “I know what we have, but I also know we won’t have it for long if we allowed four more years of the gross incompetence. This thing was just running — it was running as a free spirit. This was — this was the most incompetent president in history.”

Though negotiations over tariffs are ongoing, Trump added that he would consider it a “total victory” even if the U.S. has levies as high as 50% still in place a year from now.

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Economics

Bank of England chief focused on tariff ‘growth shock’

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Bank of England governor: We're seeing the uncertainty effect of tariffs

The Bank of England is focused on the potential impact of U.S. tariffs on U.K. economic growth if there is a slowdown in global trade, the central bank’s governor Andrew Bailey said Thursday.

“We’re certainly quite focused on the growth shock,” Bailey told CNBC’s Sara Eisen in an interview at the IMF-World Bank Spring Meetings.

Going into its May 8 monetary policy meeting, the central bank will consider “arguments on both sides” around the impact of tariffs on growth and domestic supply constraints on inflation, Bailey said.

“There is clearly a growth issue we start with, with weak growth … but a big question mark is how much of that is caused by the weak demand, how much of it is caused by a weak supply side,” he continued.

“Because the weak supply side, of course, unfortunately, has the sort of the upside effect on inflation. So we’ve got to balance those two. But I think the trade issue is now the new part of that story.”

Inflation could be pulled in either direction by wider forces, with a redirection of trade exports into other markets being disinflationary, but a retaliation on U.S. tariffs by the U.K. government — which he stressed did not appear likely — pushing up inflation.

Bailey added that he did not see the U.K. as being close to a recession at present, but that it was clear economic uncertainty was weighing on business and consumer confidence.

IMF downgrade

The IMF earlier this week downgraded its 2025 growth forecast for the U.K. to 1.1% from 1.6%, citing the impact of U.S. President Donald Trump’s trade tariffs, higher borrowing costs and increased energy prices.

However, economic forecasting remains mired in uncertainty as countries engage in negotiations with U.S. officials over Trump’s swingeing universal tariff policy, currently on pause. The U.S. has imposed 25% tariffs on steel, aluminum and autos and a 10% levy on other British exports.

U.K. policymakers have expressed hopes of reaching a trade deal with the White House, with U.S. Vice President J. D. Vance saying there is a “good chance” of an agreement.

Bailey told CNBC on Thursday that he would be “very encouraged if the U.K. does make a deal,” but that its economy was very open and services-oriented, so it would still be impacted by a wider slowdown in growth or trade.

He also noted that inflation would increase from the current 2.6% in the coming readings due to effects from markets such as energy prices and water bills, but that the bump up would be “nothing like what we saw a few years ago.”

The Bank of England held interest rates at 4.5% at its March meeting, before Trump shocked the world with the scale of his tariff announcement.

Markets now see the BOE slashing rates to 4% by its August meeting.

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