Markets aren’t sure what to make of the narrowing odds of Trump 2.0.
Wall Street’s response to the attempted assassination of Donald Trump has been as muddled as the event. Bitcoin surged. Green energy and semiconductor stocks took a tumble. Long-term US bond yields climbed as investors bet on an expanding US deficit.
So what? Markets aren’t sure what to make of the narrowing odds of Trump 2.0. On one hand there’s consensus that a Trump victory, and the possible seizure of Congress by the GOP, would be inflationary (in a survey of economists by the WSJ, 56 per cent said it would be higher under Trump than Biden, versus 16 per cent who said the opposite). On the other, stocks have climbed on Trump’s promise of tax cuts for business, looser regulation and up to three rate cuts by the Federal Reserve before the election in November.
What we know. Trump’s economic policy is characteristically short on detail. That said, an interview he gave this week to Bloomberg Businessweek appeared to confirm that if elected he would,
- allow Jay Powell to serve out his term as Fed chair, with Jamie Dimon, CEO of JPMorgan, slated as a potential successor;
- try to lower the US corporate tax rate from 21 to 15 per cent; and
- reverse the Biden administration’s proposed ban on TikTok.
He’s also floated a 10 per cent general tariff on imports, rising to 60 per cent on Chinese goods, and the largest deportation of unauthorised migrants in US history. The resulting squeeze on goods and labour would necessarily be inflationary. But so far the response of stock markets has been indifferent.
What we don’t. There’s speculation that Trump could curb the powers of the Fed, conjuring the hair-raising possibility of executive interference in rate-setting. The GOP platform, styled in Trumpspeak, makes zero mention of this, but Project 2025, an influential 900-page policy document assembled by former Trump staff and allies, suggests
- eliminating the Fed’s “full employment” mandate, requiring it to target price stability alone;
- considering the return of gold-backed currency; and even
- abolishing the Federal Reserve and replacing it with “free banking”.
Trump has disavowed the document, saying he knows nothing about Project 2025. But he’s also often told advisers he “loves low interest rates” and has expressed frustration he couldn’t influence them during his first term as president.
Experts say it’s unclear whether he could legally replace the Fed chair with, say, one of its governors – 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 make themselves heard. It’s no surprise, for example, that the GOP platform contains a pledge to “drill, baby, drill”. Trump made the exact same promise to oil executives in April, during a Texas fundraiser that netted $40 million for his campaign. In addition, the platform lays out plans to
- defend the right to mine bitcoin,
- eliminate taxes on tips for hospitality, and
- rapidly expand the commercial space sector (it’s easy to see who might be pleased by that).
Learn from Liz? Before Trump starts gutting the institutions that run the US economy, he might be advised to study the mistakes of his superfan, Liz Truss. Eroding the independence of the Fed risks, in the words of one investor, “waking up the bond vigilantes”.
The far right in Britain and France has learnt the hard way that spooking bond markets is a quick way to squander political capital. America is exceptional, but that doesn’t mean Maganomics is immune.
