Investors have become increasingly confident this year that the US economy will achieve a ‘soft landing’.
But the election of Donald Trump as the country’s next president has complicated the prospects.
And some economists now think it’s likely the US could see another uptick in inflation if Trump delivers on his key campaign promises.
“We are in a soft landing,” Nobel laureate and Columbia University professor Joseph Stiglitz said Tuesday at Yahoo Finance’s annual Invest conference. “But that ends on January 20.”
Trump and his proposed policies are seen as potentially more inflationary because of the president-elect’s campaign promises of high tariffs on imported goods, tax cuts for businesses and curbs on immigration. This policy could also put pressure on an already high federal deficit, further complicating the Federal Reserve’s interest rate movements.
“The biggest risk is a high headline rate, which would likely hit growth hard,” Jan Hatzius, chief economist at Goldman Sachs, wrote in a note to clients on Thursday.
Jennifer McKeown, chief economist at Capital Economics, also acknowledged in a note this week that there are “upside risks” to inflation “arising in part from Trump’s proposed tariffs and immigration policies.”
And investors have taken notice.
On Wednesday, the Bank of America’s latest Global Fund Manager Survey highlighted increased expectations of a ‘no landing’ scenario, in which the economy continues to grow but inflationary pressures persist, leading to longer and longer interest rate policy by central banks fed. bank.
Tariffs are one of the most talked-about promises of Trump’s campaign. The president-elect has pledged to impose blanket tariffs of at least 10% on all trading partners, including a 60% tariff on Chinese imports.
“It will be inflationary,” Stiglitz said. ‘And then you start thinking about the inflation spiral. Prices are going up. Workers will want higher wages. And then you start thinking about what happens when others take revenge. [with their own duties.]”
Neel Kashkari, chairman of the Minneapolis Fed, categorized a possible retaliation as a tit-for-tat trade war that would keep inflation high in the long run.
‘If inflation rises, [Federal Reserve Chair Jerome Powell] is going to raise interest rates,” Stiglitz said.
“If you combine higher interest rates and retaliatory measures from other countries, you get a global slowdown. Then you have the worst of all possible worlds: inflation and stagnation, or slow growth.”
