The Fed’s role is a big concern, as a result of the election.
There is apprehension regarding the Fed’s economic role; and this is because of Trump’s large-scale criticism about Yellen’s monetary policy choices. FED officials speculate potential for rapid inflation and higher economic growth than expected subject to Trump’s planned economic policies. This would imply FED hiking interest rates faster. On the other hand, Fed policymakers presume that implementing Trump’s policies would stoke higher inflation, which in turn will force the Central Banks elsewhere in the world to aggressively raise borrowing costs in response to such policies. In his plans to stimulate economic growth, Trump proposes strengthening infrastructural expenditure and lowering corporate taxes. The Trump administration is anticipated to increase inflation signals to the Fed’s ranks. This would offset a peaceful tilt in 2017 on the policy-making committee as well as rattle a fragile consensus to slow down the rate hikes. All said, Fed’s economic role could be threatened by Mr Trump’s administration. This is evident in Trump’s expression of criticism towards Janet Yellen’s monetary policy choices.
Election of Trump has sparked inflationary signals especially in asset prices, with investors expecting business tax cuts and deregulation. This influences future expectations of inflation, with investors expecting a shot of fiscal stimulus resulting from huge regressive cuts in estate taxes and individual income. Also, interest-rate escalation would drag growth in pay and jobs. The tax cut plan will only be beneficial to the wealthiest Americans rather than all-inclusive: including the working population. Further, such tax cuts would somehow limit the boost to demand. In addition, the plan on infrastructure spending aims at cutting tax for the wealthy investors, a proposal that will slow potential of job-growth. A huge increase in government deficit, in the face of all these matters, could jolt the economy rather than help.
International trade and commerce has not been Trump’s friend either. He has a leeway to impose temporal trade restrictions, which might pave way for other countries to respond punitively in a more similar manner. The hyperglobalisation of the 2000s may be a defunct scenario, if Trump pulls out support from the World Bank and the IMF, removing shock absorbers. And then, there is also the question of oil prices and his ‘prerogative’ on them and the consequent effect on interest rates and inflation in the economy and the world.
The U.S economy will weaken significantly if Trump’s economic proposals are fully implemented, with a new recession starting in 2018. In view of the proposals, a number of conclusions can be reached. First, the economy may become an isolated one. Second, increasing deficit will worsen current account balances. Third, the economy will profit from high-income households, and not the middle and lower income ones. Lastly, in addition to weakening the economy, this will lead to higher unemployment. On the long-run aftermath side, market gyrations could suffice to bring damage to the American economy and the international economy at large.