Four Major Policy Impact Speculations
- Uncertain Impact of Tariffs on Inflation
Historical data shows that the impact of tariffs on inflation is not straightforward. When deflationary risks outweigh inflationary risks, tariffs have a minimal effect on prices. However, the U.S. economy currently faces inflation stickiness. If Trump enacts widespread tariff policies, it may increase inflationary pressure, but the government might adopt a cautious approach to control risks. - Fiscal Deficit May Contract Before Expanding
If tariff increases and spending cuts pace faster than tax reductions, the fiscal stance may initially tighten. The U.S. might pursue a "tight fiscal, loose monetary, broad credit" policy mix in the future. With Federal Reserve rate cuts and regulatory easing, the financial cycle is expected to rise, continuing economic expansion. - "Goldilocks" Economy May Continue
If tariffs do not trigger significant inflation and the fiscal deficit remains manageable, the U.S. economy could continue to be in a "moderate" state—neither high inflation nor large-scale unemployment. The Federal Reserve may cut rates in the first half of 2025, making monetary policy more neutral, moving to a wait-and-see phase in the second half, adjusting based on Trump’s policy outcomes. - Intensifying Global Economic Divergence
Countries facing tariffs may encounter reduced export demand, worsening trade conditions, and currency devaluation. Increased tariffs might prompt other countries to intensify monetary easing, keeping the dollar strong. This would pressure commodity prices and bond yields, likely intensifying global market divergence.
