Trump’s Economic Agenda May Face Investor Pushback
As the dust settles on the election, experts are weighing in on the potential impact of Donald Trump’s economic policies on the markets. According to Wharton professor Jeremy Siegel, Trump may need to soften his stance to appease investors.
A Pro-Market President
Siegel believes Trump is “the most pro-stock market president” in history, and as such, is unlikely to implement policies that would harm the stock market. This is evident in Trump’s tendency to point to the stock market as a measure of success. With the bull market roaring, Trump may hesitate to upset the apple cart.
Bond Market Jitters
However, bond market investors have already shown signs of unease with some of Trump’s proposals. The yield on the 10-year US Treasury spiked past 4.4% following the election, its highest level since July. While yields have since stabilized, Siegel sees this as a warning shot from investors who are skeptical of policies that could add to the federal deficit and stoke higher inflation.
Tax Cuts and Interest Rates
With a Republican-led Congress, Trump’s proposal to extend his 2017 tax cut package looks likely to pass. However, Siegel predicts challenges to Trump’s other proposed tax cuts. If implemented, these cuts could drive yields past 5%, leading to higher long-term interest rates.
Federal Reserve Independence
Siegel also believes Trump is unlikely to try to exert control over the Federal Reserve’s policy decisions. Markets value the Fed’s independence, and any attempt to undermine it would be met with disapproval from investors.
Markets Hold the Reins
Ultimately, Siegel sees both the bond and stock markets as significant constraints on Trump’s economic agenda. As the president navigates his next term, he will need to balance his policies with the needs and expectations of investors.
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