Trump’s clear and swift victory in the US presidential election has prevented turmoil in financial markets and more importantly political violence in the streets, Rabobank’s Philip Senior US Strategist Marey notes.
Clean sweep to challenge Fed’s independence
Trump’s return to power, backed up by Republican majorities in the Senate and probably the House of Representatives, implies a major shift in US economic policy.
Trump is likely to raise tariffs which could cause a rebound in inflation and a slowdown in economic growth. The negative impact on growth could be mitigated by tax cuts and deregulation by a Republican Congress. However, this would increase the budget deficit and reinforce inflation, especially in combination with reduced immigration.
For the Fed this means that a pause in the cutting cycle is likely in 2025. This would increase tensions between Trump and Powell and would give the US President additional incentive to challenge the Fed’s independence.
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