photo: tortoisemedia.com
Wall Street's reaction to the attempted assassination of Donald Trump was as confused as the event itself. Bitcoin skyrocketed. Green energy and semiconductor stocks plunged. Yields on long-term U.S. Treasuries soared as investors bet on the growing U.S. deficit.
What does that imply? Markets are unsure what to make of Trump 2.0's narrowing chances. On the one hand, the consensus is that a Trump victory and eventual GOP control of Congress would be inflationary (in a WSJ survey of economists, 56 % said it would be higher under Trump than under Biden, compared to 16 % who said the opposite). Stocks, on the other hand, rose on Trump's promise of tax cuts for corporations, easing regulation, and up to three Federal Reserve rate cuts before the November election.
What we know. It is characteristic of Trump's economic policy that it is lacking in detail. Yet an interview he gave this week to Bloomberg Businessweek seems to confirm that, if elected
- will allow Jay Powell to complete his term as Fed chairman, with Jamie Dimon, CEO of JPMorgan, being suggested as a potential successor;
- will attempt to reduce the U.S. corporate tax rate from 21 % to 15 % and
- will repeal the Biden administration's proposed ban on TikTok.
He also proposed a 10 per cent across-the-board import tariff, which would be increased to 60 % on Chinese goods, and the largest deportation of unauthorised migrants in US history. The resulting pressure on goods and labor would inevitably lead to inflation. The stock market reaction, however, has so far been indifferent.
What we don't know. There is speculation that Trump could limit the Fed's powers, raising the far-fetched possibility of executive intervention in rate setting. The GOP platform, styled in Trump-speak, makes no mention of this, but Project 2025, an influential 900-page policy document compiled by former Trump staffers and allies, suggests
- removing the Fed's "full employment" mandate and requiring the Fed to focus only on price stability;
- is considering the return of gold-backed currency, and even
- Abolish the Federal Reserve and replace it with "free banking".
Trump distanced himself from the document, saying he knew nothing about Project 2025. However, he also frequently told advisers that he "loves low interest rates" and expressed frustration that he could not influence them during his first term as president.
Experts say it is unclear whether he could legally replace the Fed chairman with one of its governors, for example - but two of the six current governors were appointed by Trump.
Trump trades. Trump's approach to economic policy is transactional and favours those who get close enough to be heard. Not surprisingly, for example, the GOP platform includes a promise to "drill, baby, drill." Trump made the exact same promise to oil executives in April during a Texas fundraiser that raised $40 million for his campaign. In addition, the platform lays out plans
- to defend the right to mine bitcoins,
- abolish taxes on hospitality tips and
- rapidly expand the commercial space sector (it's easy to see who would be pleased).
Learn from Liz? Before Trump sets about gutting the institutions that run the US economy, he might do well to study the mistakes of his superfan Liz Truss. Undermining the Fed's independence threatens, in the words of one investor, to "wake up the bond vigilantes".
The far right in Britain and France has learned that scaring the bond markets is a quick way to squander political capital. America is exceptional, but that doesn't mean maganomics is immune.
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https://www.tortoisemedia.com/2024/07/19/trump-vs-the-fed
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