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Insights: Monetary Policy

A New Trump Administration & You

posted November 9, 2024
In light of the fairly significant changes wrought by the recent US elections, the below represents what I perceive to be possible clouds on the horizon–
 
 
1) Immediate Threat (< 1yr.)
 
Scenario: Imposition of Protectionist Tariffs
Any administration has wide latitude in imposing trade tariffs, without counterbalancing “interference” from the other two branches.  Given the president-elect’s “transactional” reputation towards policy-making, I strongly suspect we will likely see the erection of trade barriers, not dissimilar to what was done during the first term when tariffs were imposed on goods valued at approximately $380 billion in 2018 and 2019, 
 
Any student of Econ. 101 knows that consumers pay the ultimate price under a trade war, as they bear the brunt of heighted costs relating to supply chain distruptions and retaliatory tariffs.
 
 
2) Longer-Term Threat (>1 yr.)
 
Scenario: Higher Interest Rate Environment
The 2017 tax cuts have resulted in increases in the overall US national debt; by one measure, $1T – $2T will have been added to the debt load when some provisions sunset next year.  With at least control of the US Senate, if not the House as well, it is widely expected further tax cuts will be likely.  To fund any tax cuts through the issuance of more US Treasuries, there exists a distinct risk that rates will have to be higher to entice institutional buyers.
 
Notwithstanding this possibility, a plurality of the Street is still expecting a total rate cut of 0.75% between now and the end of 2025.  This apparent disconnect is beyond the purview of this quick note.
 
Mitigating Factor(s)?
Inherently, it’s extremely difficult to speculate on interest rates, especially when trying to predict beyond the 1-year timeframe.  Furthermore, this sustained, higher rate scenario is predicated upon the premise of additional tax cuts/fiscal stimuli, the details of which are non-existent at present.  Finally, the Federal Reserve has the tools to blunt, at least partially, expansionary fiscal measures through its operations.
 
We will be paying closer attention in light of these unknowns.  As always, I stand ready to provide a more bespoke analysis of how the above may impact your particular situation.
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Initial Thoughts on Results of US Elections

posted November 6, 2024
It appears the GOP has won both the Presidency and US Senate, with control over the House remaining up in the air.  Notwithstanding the incomplete results, here’re some initial takes on potential implications for your personal finances:
 
TAXES: Some key provisions of the 2017 tax cuts (eg. lower income tax rates, higher estate tax & standard deduction amounts) will likely be extended, beyond its sunset date of 2025;
 
BUSINESS: Dealmaking would probably accelerate, given the expected lessening of regulatory oversight;
 
EQUITIES: A positive bias owards further gains in US equities, especially now that the overhang over election uncertainties has been lifted;
 
INFLATION: Economic policies (whether as they relate to taxation or USA-first trade policies) would most likely add to inflation.  To what extent the Federal Reserve can counteract against expansionary pressures will impact Street expectations of Fed rate cuts over the next year;
 
GEOPOLITICS: Given the incoming Administration’s image of a more “transactional” approach towards foreign policy, the risks of unexpected US trajectory can’t be ignored.
 
Kindly note this caveat– the above observations are subject to revision to the extent that campaign rhetoric may prove quite different from actual governance.  In either case, I remain ready & available to examine how any of the above may impact your positioning towards goals, both near- and longer-term.
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