RBA on hold with inflation & labour market easing
While it is reasonable to expect economic change, the degree is understandably uncertain given that in recent days some of the President Elect’s policy positions have been softened and meanwhile policy initiatives will need to be approved by Congress.
Donald Trump’s victory in last week’s US Presidential Election is likely to represent a change in economic direction for the United States – at least that is what he campaigned on. And as the US is for now the largest economy in the world (although second largest to China when using PPP exchange rates) the new President may also represent a change in direction for the global economy.
The key economic considerations for the President Elect are centred around:
1) Tax reform – reductions in both personal and company tax rates;
2) Increased infrastructure spending – USD 1 trillion is the number being bandied around although the reality may be more modest when we consider 1) this is 6% of US GDP, and 2) it will likely spread over a number of years as putting infrastructure in place quickly is not easy;
3) A wind back in free trade – tariff initiatives and the roll-back of some multi-lateral trade deals like NAFTA have been mentioned;
4) Financial Regulation – he wants to dismantle the Dodd-Frank Act and replace it with “new policies to encourage economic growth and job growth”.
5) Many other policies were mentioned during the campaigns which have the potential to impact economic outcomes – e.g. immigration, healthcare, and defence.
While it is reasonable to expect economic change, the degree is understandably uncertain given that in recent days some of the President Elect’s policy positions have been softened and meanwhile policy initiatives will need to be approved by Congress. While we can’t say too much definitively, the three questions top of my mind are what will a Trump presidency mean for: 1) economic growth and inflation; 2) the US Federal Reserve’s rate decision on 12 Dec; and 3) financial markets.
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