The Trump Effect: Possible Recession

JFIF;CREATOR: gd-jpeg v1.0 (using IJG JPEG v62), quality = 80 C   %# , #&')*)-0-(0%()(C   ((((((((((((((((((((((((((((((((((((((((((((((((((( " }!1AQa"q2#BR$3br %&'()*456789:CDEFGHIJSTUVWXYZcdefghijstuvwxyz w!1AQaq"2B #3Rbr $4%&'()*56789:CDEFGHIJSTUVWXYZcdefghijstuvwxyz ?V`-RPEQEQEQEQEQEQEQEQEQEQEQEQEQIJ(-b((@ (Ȥrkg.Kݬd=I%}MA<<'_MDP"$axwJl᷶aX(9'uU_ST(r0wJۂ+:79F#c:Vkrb6UNG= lr.:5<8z%:.KیH͟?Jbr:&uS~tr~nhc=c3yrQJ`pˀN=}[5tRlCeO19?SYWlCޤU:šz D%`ržq#Ds9Bm#l$zR$|d94/4ڠuvyTm/\s֥ϨXXŽb_$6+:(:r8Ac=HZ-RZB|QJKK6ITr>[o9>\VF̢E~Qy줉m=1U߼ qJ[BW!?^,jrub}1Y2PCھ,Q` n0x_2|Tޗ~mxW6?[Ŷglxc,#51H7FF V!QIHbEP E-!0>((((EJ((RR0(RPEQIK@Q@Q@Q@ KE%-Q@Q@Q@Q@Q@Q@Q@Q@%-RS1F ړmk,DR8fv[ fEEz~?VjvA9AM+ݓF5x~6,fce;VAy8esN;Z,jF0MT.a'?" ӓךhG-NA(wwnIOns Dї X9#L;rvi~S88A&H휃UB79KbiiJ`jY$spfgLZ9̱8❽xYrUbj!E8*{؊KsTWAE' IFL뱳V>Bz@r?j?.F$2q;aJKy/QQ*x;Ԏ0Wu%B'1E]`~Fʌ.QZv j2 v(L'Ԭ7JºE8n*ݚO>53hx_r\:iW/rN uxfd\,-pxIl%)握a־x/jCu{fMZĈSiZuU.€fQҹ 92A*qZ-Q7*A84P0QKLB )i()ERQ@Q@%-QEQI֖ (GZ(4Ph) (((((_Š(((JZ(((((((1NLAR b(8z+sO5/˓?C\WOWwHȐ2}{gpX%vzHNo Ng9 K$s.?jt{9_?#|Ĕ:Һm"6h8 kו>|Accm# ˭uv4089=kdjΒ+3ylG\J&8Ps9 $K4chȘ1uzM@e5؉#vA|wpJE';U:U@n7h-ly?M7=̆\|&ݭ :wY^8;=!ȩOQm*HlV\r[I1}k k)vc+:uݏ/9ϯ͑'?#ުݯ0霏qFnXFdï*3i y70ֵm&/Xl=ބ&Yi lVF C V "A KacsִNĴ]FQH# ~ 4훘UeLO$*3}=hx *mstTsS!1K[8橺vtN:L das^R<ú3kW|V3lIvۆ`=;:W! ꤤN;uiB?>k4ַvZ]/r0ARhȼWYGvW$pf=F}3^1Y[*^\ ::ۙ U5یukտҭ7, s\Ɓ` 5B<?sbjr+Q/9@b~=f7aGqi7qJXK=] -JBWRΫآm<0- *9称qJU8uhB]1 2Bî7qRՇdE\ԑ(rA9O7j~:2?sO7)gLYJo-iht̒Tc#@,Ny8h1b2;w +%Rrzz]Q1dߌ rV :%[i#?N=Zp07Oj%d%%d (fa}&"q*ԈYC"jPF0r,iGlc 6Gӫy {[ *]2:!g&<=;?SHW\Q"lz_~)3);[>HȐ$=A!wcǝ.oԖW%\֭5b-}M|t) #哕GcMzVsV!Vq`@*b w~5jxwwn"d?+ci$U6R񏼤d£eJn67BkIr/.j1I 8iŃE779U= \7qO \1 NOסtr'OX mc1 բ3Wri,ͼN5VqƤ*1zq]hv"QRC:De/.>0p 挳 FNkv`WKitIfXh=k*S'3JE這\Rb (4RRR@ KEQEQEf)@?0Ei(4CEb (C ( ( ( JZ((((( ( ( (3@R@Q@%-ii)i_/zJ>E:6"pw5B<93ũE0Wb~Pv&=,@w < ݟ;#RGp%l.1e7gI<h'[gQ#orJRy "iJ˸>? XR38*5tCU#$#VrEEC GG's[S՘ONpmbU{ZL%rDg s9Ģ)4R(O4fJ(E ( (F9(Aޖ)zQJNPҊ(C ))h((((()h JZ()h ( ( ( ((((!hz1IO,Dp@eC$gڹ6r@uկ,eXl՞FP0y#w-" H O?Jn+sXUin-X{eeOxJ<yzNڝxpBq{w;EhĐ[?=TXrqZB5E .FZ_3c"lߓO\{`ɞNS46UMp:5D6H;29qY2+c(HvH] xAbѤbXAdzsxPOD_&>7wc5Zu v1%z*O?~$~[0?JI6U =gZWbpy$#+qְ$-[pj"Vump5J?xVS*:瓱 3UsV,BIJy"V $AnJm=wJy5011ֹqyd9bf;95BSlU_?hŴT '.ןljG R=ܿ;#ҭVaSz31" ".p^sP? ys=,ŵFTQOw 8#2ڧЏu:S{:?Ov5dD⢖0cϯJ7o;JmZgmHxIz/ +bߥPBUY `~46Ius̨ 4l{PIV9 jTFH\ *3C)@ cUpVki,ǒy洮&bT+ JmTR.x%mz_DQۯZVg !Oos^Ih ꛀqb,]f,`{Oʪڜ(>lU[g)"G򯘾&rw$J8}%e3+2Z_~eޟs-TUtg-]OX EV=iQ$t]& (4u%( Q@ERESbPhhEQ֊J)i(()QGz 0 (Q@Q@QE%-Q@Q@Q@RRPEJZJ)RE%-0E@=;R@0" q?k^[[m*)۷o Ƽn5#QXb2S֍"Qԓީ]ۿx7)' RΕmfhw6HW̹8Gcp+b5/oW[xWYw?Z+1v3:T6.Lx9ݞ~p< dVicE[G5!LdtȪS[шr1p<`Q] U2֏&ur G>^;u2"n)$%b##=ͣ$bӒG dw,CbM۞*)}PdO)Ld.""<}\Ynœ |~'=/ ddtNfS3v{zJtOOpZhV.>#ffIvm邏=@qUEMZfn:V+ 1nNlC¶#,2? ͽ1ȻPGN> "w϶jMl+J1"&&+Vq"F+T7A6mx΢b<qBx#4 *ʸʜ}?uiV&=ČUI،z_cdžnkPl{~/|7L46xYҦ`X^ e.R6gm+CZvŗUv__)YJǫJ<ԍYUFHzT.W9շ=V}vO ͲllrAi@`=pȄ/>H=ެ_ of(_ \$i ?,GZPmPzIvpHJV.w0P:nr3QsY=..:3T6;}Y|٫P^=NG޲h?*ڵ֥V9m?a#m Z)}Dǟ1ySGJٝݿ2/b?Pdsjb}d/yQ'عw4VoDcSYͶp?&XzqN}g=aV"mn#H(b#3jMʭ8=^꒦u ~"5y*:a}8.w'<{XHܸu#bQKcgq#%==9 ͶE(8 rN*U6W>VI-^uR]Ž9"Ogʴm eULn= 44I.N:]bQ,g2g?*m&[kIA=kJ7zn1׶kQ9o#E-?S޿X^; gJ4B7gh}zJA,5:2s7EN\Hs;}I5WiEv((PE@-%Q@ZQE%-PFhQHh(QIKH((((())h((((QE (Q`-.8NF(^9N393^VMEwVqs* KiDbH olOX\Xdz}Nhl.پ\qM^gcF_='L3Pf v[frk?-.tԍ(8PGLU/]FI+5hbm"_,~`g:#{+Ѵ8X$`VFE]yEC& vC>T`ilby^wd{(Yn^ͩB~lZCeH {J/z'Is*h#2}Wڋimb C^sY,. 8<kS8 Y^G(*oz IFE"9,}+${;LwV[rrOaiyȭWc WxcALwc.O;rIthX  ; ;֬p޹7cI^9;(y5y#P{vPBÀ=9$!PPɓ@?0z{CbXgM=VZ\ȷW![^<5h=kK+CfJ%3[I ;p?6zlGs{ҭىuVb3pu9:Jukҩ +wNO+M Z5r)#)w r ^MXdGqGZ L'ޱĎ ZaAϭd1giZCWtTc{ILkgA:s'gX.qHaSԷ:tgU T}xr'8f{Z@ J[yg${kyy$k>n((<ݍ5%8Z-"HO8`)8jPzWMOsȓ*kwLr@бFL@?Ҹ $A's]n1bArB1=9s V& %xq)8 E(Kb WsBM#9TҞHy:^>igz%Vꆗl}mcEg=u>5'TA=-@NI#'[*1R#UIt[x| 6?. tYjbX#Pvݸ*\K }s \$ϣ%8).bk`uMb򫜎 i* U}J `.ykRV:!~:UmxTIH%.rA MQ ggIjހF׹^ruVP9sX0!?JA19Яg]&@F;O+u+>13W%1ӎ vԇ)je~F9U6:- LĎAZ;YXI.1dWSZwrBTq]W}x;[j }I=Jt-sڮ[&NG'szf<9J證PJr956!e ;#֫+*^VQ$@[[¶3Gn_Vut{w>M(p?]T;͈j%<@ Z (IGz %-%%R (%R1)i;R ^R撀 ( (Pi((Q@Q@Q@Q@Q@Q@Q@ޝ\m:º[.^r8kXRDJj;y&w7^u-m;*$U{i8\ aj7b}O=HI?Jҳu ҥA*,sY!_h7c*ޱ9dcϡ5!ak78+܋ChA{/g'dFNkP5)6֧Kk=#À?uvo|GJ C܂j)f8kCڮeل:cqĢHc;xW2ksv6N7䤧vO$qiڧQTef'r>by" Vsڤ ~  qϙ#hS= ]pbGjl;.N1ڷQsRtC0sx -EG4aHf uz+K!^Ϩ\DUG~!bH %T]s}I9u6ѕUfz&aT|q[ f#?¸Q,<5u&`LtVў屲sd1\(܊{{L Cz+M3&{c=tM3erR[ 5WIeXx&R5{3݆9A"B ÜӱܒpJ̶$˓aYW;c-%8V~,ey0*1۱=*J~@HVPm9Q;U)f=kj7FuDN@\gF.XjƄ9hx=g"w jO|wt 7OsY }ltFg<2{ F%I?F9]['T8`IfrQxPӵ"4qؒZ2\*J%,jF9WC[05Nc(oQ[f?1pzjz=ʃ֞p26sڻ;GpGS A\΋%CZ $eS8tor12JF*XjۙXX@#U1ؠOdek]pHu>͖YpqM`~RTČ%p;RrRėәu'L~[7!V,7g:T9?ҧz ; wBxwn$85;s늮b*~44s!-!XYL3YE@)Cf?&;dהE1nKOֺY67݅rqZrǛcˡhi!X&zVE=G\Rr6ZH`:z׮KrOQӵg,9z%p@>MuH^7Zeen3W5x&e̖2N[](AhPO~TΌ'"'.-N"#{A${n]f^%-AtrO mbͣ[<ƊyYu tQn2_Qs:S] yǢ)"m#)"@ IJ(:Q@RQEQF(;RQK@ IKEE@)) Z( (Q@Q@QLP:ڴ &ʚkh0)P\j6&|朜5Ӛp%G5%YYy 5d4w ҽSᇇbIN1n]){'o G#a Tש(򗇤Q&}iZ^lZZ[샚 #LmKHXhO!S@ՙEyya,x_ 6;Kh`pqEpFwF3Hu)#qE|%Ai h0=}n1P{ Gٞ+ [89>m2F9*IO#k D ޳..A8V#;L 7ck64QԖ"ݔ0㤀wSE>{u5j Z"Y J%KnR<:?Ze=ϓ\lf1+ӎTXI]OGxSm>o kYGaLmk]Rsޮ.m~oA>J}D*[#Ӿ&X8ڙ겡J4X_ϲ w'bt'a#eKv9¤`6j=&j͕= h ]zq-eIȮPS9dv[jtEhY~ gMPbsw(!?ϵgK"➣k{qQǹ܍2rq+F;G^dW%s57+0ǫJkc^jVD|LWoެ0E2GY61p{ zO=PDzmRM Y4Q܊aVXpjQ%aajv4zkѬe-i @9 Ɲ"/^MyloGQWW"2;pl.HZچ5Ld+RT?*ijsө)\ͫggM`9=/9ҭOm,[fx}+h&E" k6,7VU~ g9rY9p+*O\cDo#Q8+XE)SsN+M^2J~b" 4EgjkD=î-lllG@\L3%2Ê+9N*D9+\1pm* HL`lѪR?=%+ bh,i-d$TY õMWB3To'9!Tw4yFi0I!A皥vg&fIjV8>eQ+Jə5}##il$ 7]8{XHPx~kJBiJۓ(0ۚԲR9\Rzȥlqں#7k=zf:Z=kBǾ3WrM8' 5Y'$ezլSdFCZ X; \+:cU=BKi s!VE\X(4RZCEQF((ZJ? QE!Q@Q@%-QEQE*[x^e1'R8'k}D4ѮRFӚ}F &UcU>w5Kr޵Z_ 5pDd @֬ݩ`5dدum`qY$q^Lj"& >%3H''du?_Q +ڵy6F==)oQ 4G?Jjɞ*j:"PÃ&2}}랖8iމ3KCeϓSF<09RVP@jjKCdo|~jMx@9'SPĕ-ֽ_D΅$'59ȊW1g<xJͱ?$ R>Hz#RkmB`?p:?k Ci5sRr+5[jSQz 7֦Wſ)$| nSi>5_ _i$8> fm;2d)gF+U3UNkFDřIɧ*1zS>֢zF=jY#ricLu؂yvD\Αl a81$Ú[U0* l g+[C2:8p}}jWCVkv>jB:z,&I8o֨iv@6 0C ]by|mhW^ ?'"7 *+RpPzfvw(߁޵1YI5:İNi#wգ^\#cɬlwBfd;'zUI%,ѶL?J%UcRI0w!@5:#M931U50Q]LSRRܓTdKGg24o9 @5m\V(9M_4]wV2N b'kBsnPT ~&O$P lMp{)!t#5Em9Nϫs3؇$q+Lvn IxY qxOjeQ缸(ªK?:1;߄3/AЙ?<~FdjY] NS/+^)Ryp@8Oc[ěGh/V7xI]N2JQvb ?\RךRMUq5 0԰|QA4lAؚ21"YH#N:ԫhtEqՈڬ#6xUf-sG֯?˂GJU*:֪GK ֬%zN~n+lѩrN)9zy`#ްvJyGs4M۾nh~"@ņ폭?çjL[:o|gPWѧv8xa^A'|IYxrz­4F'i+<:ѓ5%q\˫#:כ8J錔%(NQQڀ QE J)h(4zъJ(>P0)QEQE((`Q@@jޙGE$Z9*Zp2iCDNVAGTt2z觷ENֳ\zWs{s6W$ %a=kNUIcZVLQpcDz? I }hcHW('Dq؉X5ܲjnGBO]NV=Fr3O;\溷tiI3FNI$H[@Y-yw7]KB201SrW) [^?J9 "j|Skk:Mi׍8ttaw֙H2>yam$pjuҺdk4dwN6pgKĪu\=%Pթ!`fcS]>8wAKi[IO>XVZh~vƟpI0\܌vڞ@7mo:H] bc>eDfRvCӭ^v;YRC>B1Bi)4jszzUySyȧmmvb0 )yzn3JWaW׫sPMD&SU췩Y^k׿g S(ܷ {Y!c뻛holA$)GSЃ_1xs_]Ռ$O^Ճ 'ҳU-M{[!K+ЫC %HZ.nD~^EoxڏwG#هc\:I &YzA"]BNv~W=+!Ky k0A5;ddXv:Wj+)OR{.Dzd;zv<զ]zd}ڞ[Fg_=%0f59⑥Ad=yx_q]QƷPrAWkf)*C3'a 8cR`7lR+::lW 5Z.MC+dЂp=zђ8&foSjAuk6sshopkhJU)+ uaWlvZQj-)*S)NsJgCgtx1]χHBOTIu\Ux][nE$kBG|=pтIZ7W=NF{թ.v+MrG'${iA|MDM's4if%}}ytv~?tcNG5(<+3WsPӇJy:ԣ qI1z 0isJ<~5܂*np*6)$$zU18R'\ˊGV7X5=}e1Z`d\oÛs@X{WjL}j'R2ׁ}#4X%ھR #AIYӨ*2TNS&Ӑ9 t ,['<ǸG:Fzr+ϔYӨ4 I «r{Ojz:d#MTYu|s@*28Q'5,gg=rqq(EEImoq{p!g8U9]ú@U:46 xrB aXrUƒ jPZnqjĉuȈWZm meC :Մ\MjZ[@O5 j:#ϩVS$1P}xA.?r<7u;6!])1g?\񬐣f AFxz5ҥPRKPL ;q,1ޓu]⛞i֓"4("FhNi.?D^k7D}*d뚍L i"CޡPAԪ+dK'V)bU;UKL[wS@|p*OzRxӻc8UL0i11N^MAx<L =x5"o@:ªdT\&4J.Z,ssڻk;]'~.zs), F}IJZ/X$B=jnIܡB¾Ңf$y'7rFt[¯\+Ȉcn̽m#R.w\ r>Z-V2n=jTǿ\&e3Mu+"N`z`?bf7k\.>ʸ1ڵae$~uqWizk7˟F3K sոiZ9)+2bxDm)I+K@#b :KɍYF&h{T[ Y3PM|3Z]WZpC^gh"o |#~f9G I73R߻DX9HFOJazgTmO85*XSsN1zdSђW_APjkH6f$>q/5g~Ϧ玵^*֝YM~˔S>t֫aijQZ2@(2^> *o_o<{h}!c׃K VE8 weķ7R\\I=Ý$Yivw>m*yEE"sMXim Jqzבx8^T7VROf F56UmX?76ZhhfS@z[V}[jZ4QM rH~c9k$&>nk̾xѱpY70 9Qũ[Cqi"7C ;e97ZV!oqT@1R>Q:xXQQEP1i( (QH(io}y?14*6 p?q=}T3(U%PtU@TEbV1bk҅["W?^JpLPk 魥qU o{E&S$g?y::M NrnjQvTϓҢJN"5? -󇿱LX鏕Ҽo݀y*L:hk2aqzg/ˌ\α,bHRgfs?=(zl@ zb%rا,ԃϵMhH9sSA)^E;!\R``Hb3NZNi)"ׂ({rOZPsɰ=:Swё!CRC^-: h_t5֧ ׭d剩>pQLY=+2Ojv⩸POBsEa( J-QH((4PaF%~YbI+ul&OkH,! 3P$a,G>ֺt`bE$u94`w'*4eֱ ,cS)廕ۡ+d5|j9tKG'uv_+#? 4$V nyYV4.@FI5F_$?:ޕt.md.@'?j%W 14ǶG>귎<'IhAv\(8 c*r%Oh~L3z!W 3+-N'޽#wU?C]F_kCdSuU9.^1IJ|B4IN%J+oxxwi[q.zɞk޼k~Ъ$yi\~><6:}0kS<ƻGճNGzv8^)yN 0S `JڑFjP1V@8P0*n"Qp+Uv5ZxP  n}iqOTc})A8m6x)A֐5;J0i〧Κ֤SϽRFisILHvqҢnQyk:g,sDq֖ 9*7v USɫw.+6Wɥ7aEc3w84dVMːfxِ[D (ý(RQKHaE%-QEQV,mqv=&ݐ7a#K1+A,$â* Vz4:W\)j2rrYK♜n4 9-Ԉ9+F0GZ@vNjè_]i郞+OE:_Ur)yEcSQ'fnD-dd_U`m7Ul"ZlNkeu*mFGڣH;mUWWxںOxbnDy+Qrz#uWlk⸭G96,JxGS]nfzQ}tY$TJ:I!.ߙA0*=1#Wh63wg `%hJ{VR1Vij uP..<9~-Ogڍ9DĜ ?}k<5_KhfOW:jSQlէ[55d)oRα%Xn֑{ P s֥V9Sׁޭy{ӏ/jm0~6M0VVM 8JC TqQ!lS6T<ȼZϨjviW zQrY mn'k C8O+= Y^ cN"Cߏ^i*FT` ԲJAfVO=H[8ðzJlYcq* FQ`&)֝Δ `o֟yXC1ҌR@fFxҚNNiI14]_‹fDɑO1Woz|ωkq%o{ EQ³)$ez7"źѷd/+:wYedu";R0z'cIX&;nٸ2uFHⴲs1ª(wLƕ%7 */sGs_*|E+YoڡV4{K4_bv{/^6ĐIN$@#F01皖iW:/{؍Im?}{(|_Ğ'feQ1_fGITHG]ƜϝYUv#i1<隭g{}k>xCfZJGr{xS{tm٢ĸTQаVa֡oCդ.Oޱ@KXh@P (4U[s' i,P:&y58H1jdT\ʎ +[Ҋb$zuwDzjEE5A]0e-sp;VR J-׭;?DIL]TUqjBz?i]LMrX.dh3{wxm1glճ]V Hk4iK]ɪ̷q eG?Z,=~H#S=^Υp&:s}lҽcPH'|W8t s޹xȱˮܦڟOyEq8lI*y)n?4 ķ^ik,1˟ΓhzSOJv 9W^98!&OtK̍G~k.u_I{# q>8qTy8t57۫xoQkP5 %tC zm>~%h'nnmfm*čsqW_jHojv:coI^>9s#K_1w0R' s5wWUM*MNKFJ .i=+j0paRJR#b0sӇDH8P}?Jr4(Ͻ.マu)S.;CҊ2:fcg1ixMv#A,i7`^ZHpյT8\lcN}jyHP; 5waTHaN'rsJbk㹭D#8aA6:<:tµG H~NUWHؘx5hPh(bRE #\ 4QUwa3ex VϵWI14QYd(sKS b*H'&)4؎ۘŠ(`}R<#yj]($l8k];P`;(HHsE=Z`3a_j'V"(avcO/ڳ d?xWAA}b9&)p90h'&*.9V%枤Eh;'bN)=S(I0^8sEvQ7 ފ)@hn Lpsڽeޡ9T~lOE|kĀ$UBĘ$RV(`)=7M >!.67u.GES.<;n@"#LP:(g6l|/76ך}Y!)knEC^?3^ElJz@i˵|_k,-t)2LVqM/s9U Wz(Bli4tE@ ɦ P; |«LŠ(!EL4QBxS*E;/Z(HЧ/j(w$b)0 ;EeQ`g]u ]ˌ(Eq++Sc׭\1aQ]pJWSU"$5=0 +&Z`4QEQE
Warning: fopen(https://newsweekme.com/wp-content/uploads/2016/11/2016-11-16T115508Z_1_MTZGRQECBGQH4LJG_RTRFIPP_0_USA-TRUMP-GERMANY-780x439.jpg): failed to open stream: HTTP wrapper does not support writeable connections in /home/newsweekme/public_html/wp-includes/class-wp-image-editor.php on line 428

By Christopher Dembik

Trump as President Could Surprise on the Upside
The question that many investors have is whether U.S. President-elect Donald Trump’s victory constitutes a real breach from the perspective of financial markets. Until now, the answer is no.

No one has been able to predict the exact measures that Trump will implement once he is in office—not even him.

However, in order to achieve its ambitious Keynesian-inspired recovery program ($500 billion targeting infrastructures), he will have to issue more public debt to finance it.

Under such circumstances, Trump will have to break his promise to raise tariffs against China because the country, which is the main holder of U.S. foreign debt (treasury bonds worth $1.157 trillion as of last September), could decide to reduce its purchases in case the new U.S. government decides on hostile trade measures.

The high level of public debt of the U.S. makes the country extremely dependent on the goodwill of foreign investors, which makes it impossible to implement protectionist measures at an extended level.

The most credible scenario will likely be an increase in tariffs for certain targeted products, which could satisfy Trump’s electoral base and has the advantage of avoiding a trade war with Asia.

The Trump Effect on Inflation
As many investors have observed, the Trump effect will mostly be found in a strong boost of investor-inflation expectations. The market believes that Trump’s expansionary fiscal policy, trade protectionism and labor immigration restrictions will substantially push inflation up during his term.

As a consequence, the break-even inflation rate for the U.S. has increased significantly in recent weeks, recording 1.97 percent for three years and 2 percent for five years.

The five-year inflation forwards confirm this trend since they have witnessed an increase from 2.14 percent at the beginning of November to 2.46 percent currently.

One could argue that the Trump effect on inflation is likely to fall flat.

However, one should not forget that the underlying trend that explains most of the increase in inflation expectations is linked to higher global commodity prices and the slow exit of China from deflation.

Business as Usual
Victory is not really expected to change the course of the U.S. monetary policy.

The Fed has a window of opportunity until February 2018, which corresponds to the end of Janet Yellen’s mandate, to continue to hike interest rates.

Replacing Yellen before this deadline has zero chance of happening.

The U.S. president-elect may invoke only two legal clauses to replace a member of the Federal Open Market Committee (FOMC).

The first one consists of invoking “serious misconduct.”

However, although this legal term remains open to interpretation, there is nothing to suggest that Yellen has ever committed such a crime.

The second lever that Trump could use is to keep Yellen as the chair of the Fed’s Board of Governors, but at the same time reduce the room for her to maneuver.

To do so, the statutes of the Fed must be amended, which requires a simple majority in the Congress and a presidential approval.

Nevertheless, it is quite unlikely that such a decision will obtain the support of the Republican Party.

Therefore, the process of normalizing U.S. monetary policy will certainly not be influenced by the political change in Washington D.C.

The increase in rates in December could be a non-event because it has already been priced in the market, especially in the Dollar Index which has risen by around 4 percent since November.

All data (including Taylor rule and investor expectations) confirm that the Fed will hike rates at its next meeting.

The Taylor rule (which has been a very useful tool for the Fed since early 1990s) indicates that the weighted average interest rate should be slightly above 2 percent at the end of Janet Yellen’s term.

However, this theoretical level remains insufficient to cope with the inevitable economic slowdown in the U.S.

The latest indicators confirm the economy is healthy, but it is approaching the end of the business cycle. Since the last economic downturn, 35 quarters have passed.

Except a new record of longevity (40 quarters during Clinton’s golden age), the U.S. will face a new recession during Trump’s presidency.

In this context, we believe the president-elect’s Keynesian economic program could be of a great help to stimulate the economy when it will be needed the most, especially if the Fed does not have enough room to lower interest rate and reassure investors.
Christopher Dembik is the Head of Macro Strategy, Saxo Bank

Social Streams

Comments

comments

Facebook Comments

Post a comment