A Trump presidency could lead to an interest rate hike? Some economists see a danger of inflation with the tycoon in the White House.
Will the Fed be forced to raise rates again with the election of Trump as president?
This is a question posed by Reuters to some economists. While the markets expect a first cut in the cost of money in September, in the coming months everything could change. The reason is the potential economic policy of the tycoon in the event of victory as US president. Inflation could rise again, undermining attempts by Powell and other members to lower peaks in consumer prices and, therefore, to ease interest rates.
In summary, a wide range of economists believe that Trump’s tariff program, combined with the goal of "deporting" millions of illegal workers and the likelihood of increasing the deficit, reignites the price pressures that now they are easing. All this pushes the Fed to react with a more restrictive monetary policy than currently expected.
Analysts predict that Trump’s plan to impose across-the-board tariffs of 10% on imported goods, and even higher tariffs on Chinese products could generate a sudden surge in inflation, while the exclusion of foreign workers would increase the wages of the remaining workers, increasing the pressure.
Here’s what some experts interviewed predict about a potential Trump effect on Fed rates.
Fed rates will rise and it’s Trump’s fault. Expert analysis
Although the probable entry of Kamala Harris into the race for the White House has somewhat livened up the predictions about the next US president, Trump remains the favorite. And economists are wondering what effects would be unleashed with the tycoon in power in the world’s largest economy.
A model from Oxford Economics, which examines the candidates’ likely policy positions, predicts that under a second Trump administration a measure of inflation excluding food and energy prices, monitored closely by the Fed, would peak between 0.3 and 0.6 percent points more than would be expected under current budget laws and policies.
“Trump’s economic program is inherently inflationary ” said Mark Sobel, US president of the Official Monetary and Financial Institutions Forum and a veteran of the US Treasury Department under both Democratic and Republican presidents. “Much higher tariffs, an expansionary fiscal policy, and mass “deportations” of immigrants: all these factors would combine to raise inflation and interest rates higher than they would otherwise be”.
Diane Swonk, chief economist at KPMG US, said in a note that Trump’s tariff increases, combined with a sharp reduction in foreign workers, will result in a resurgence in inflation that will likely force the Fed to keep rates at current levels for much longer.
Biden and Harris’ trade approach “remains miles away from what Trump proposed on tariff policy”, said Oscar Munoz, the chief U.S. macroeconomic strategist at TD Securities. The expected “surgical” trade actions of a potential Harris administration, he said, do not suggest “significant risk to our inflation/growth forecasts”.
A Trump victory could see policymakers scale back some of the cuts now expected next year, potentially even moving to a rate hike in late 2025, analysts at Evercore ISI suggested.
When asked how Trump’s policy agenda would counter economists’ expectations of higher inflation, his national campaign spokeswoman Karoline Leavitt responded:
“The American people don’t need economists to tell them which president put the most money in their pockets. When President Trump returns to the White House, he will reanalyze his pro-growth, pro-energy, pro-jobs agenda to lower the cost of living and improve the lives of all Americans”.
With these premises, the USA is preparing to experience intense months of analysis and forecasts. The world economy is closely watching any potential changes in the world’s largest power.
Original article published on Money.it Italy 2024-07-25 15:44:42. Original title: La Fed alzerà di nuovo i tassi con Trump presidente? C’è il rischio, ecco perché
