Trump: Uncertainty as well as hope

Of course, we have nothing resembling an ‘inside track’ on whom Trump will appoint to his Administration over the next few weeks and precisely what new policies Trump will in fact be able to introduce from a practical perspective – or over what time frame these might occur.

Although in theory the Republicans possess a ‘stranglehold’ on power, in reality the fiscally conservative House of Representatives may act as a firm brake on some of the policies that Trump may wish to enact while the sheer logistics of repealing parts of Obamacare or Dodd Frank may take some time to achieve. 

Nevertheless, we would tend on balance to agree with the following consensus views concerning what he may attempt to achieve, namely there should be some form of fiscal easing over the medium term involving tax cuts and presumably some form of ‘public sector – private sector’ partnership on infrastructure spending; a move of some as yet undefined magnitude towards higher nominal interest rates; some form of re-deregulation of the financial sector; and some form of protectionist agenda or at least slowdown within the perceived pace of Globalisation that will likely lead to US residents paying a higher price for (some of) their imports.  The latter is likely to prove inflationary for the economy with the result that household real incomes may, initially at least, be eroded by the higher import costs.  In this respect, we agree with the bond markets’ assessment of the situation.

Where we perhaps differ from the markets’ view of the situation is however over the outlook for economic growth in the near term.  Again, although we are not experts on US public sector procedures, we can easily assume that getting any significant tax cuts passed by the relevant constitutional bodies and enacted into law will not be an instantaneous process.