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Trump could soften his economic agenda to appease investors, Wharton’s Jeremy Siegel said.
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That’s because Trump is “the most pro-stock market president” in history, Siegel told CNBC.
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Investors in the bond market have bristled at some of Trump’s proposals, Siegel added.
Donald Trump may hesitate to implement part of his sweeping economic agenda to avoid losing the approval of stock and bond investors, Wharton professor Jeremy Siegel said Monday. .
In an interview with CNBC, Siegel said he believed Trump would take a strong pro-market stance in his next term, even at the expense of some of his proposed economic policies. The top economist pointed to Trump’s eagerness to use the stock market as a benchmark for past success as a reason why he may not want to disrupt the roaring bull market.
“President Trump is the most pro-stock market president we have had in our history,” Siegel added. “It seems very unlikely to me that he is going to implement policies that are bad for the stock market.”
A backlash against some of Trump’s proposed policies, which economists say will widen the federal budget deficit and fuel higher inflation, was already seen in the bond market last week. After the election, 10-year US Treasury yields rose above 4.4%, the highest level since July.
While yields have since fallen and stabilized, Siegel said this is a sign that bond investors may be willing to protest policies that further pile up government debt or fuel inflation.
It could also be a sign that investors are concerned about the potential for higher inflation and are anticipating higher interest rates from the Federal Reserve.
“I thought what happened on Wednesday after he won when yields were going up was a shot across the bow, saying, ‘Hey, you know, just watch what you do. We’re here, and all the tax cuts you promised, ‘we are very skeptical,'” Siegel said. “Both the bond market and the stock market will be a major drag on many of Trump’s programs.”
With a Republican-led Congress, Trump’s proposal to extend his 2017 tax cut package appears to be a “slam dunk,” Siegel noted, although he said he expected challenges to Trump’s other proposed tax cuts. If Trump were to implement all his proposed cuts, interest rates could eventually rise above 5%, Siegel predicted.
“So I think the trend of higher long-term rates will continue,” he added.
Sigel added that the former president is also unlikely to wrest control of the Federal Reserve. Although Trump reportedly plans to exert more influence over the central bank’s policy decisions, this move would likely prove unpopular with the markets.
