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Trump’s election raises expectations for a ‘no landing’ for the US economy… pessimistic outlook also coexists
Enlarge image With former US President Donald Trump winning the presidential election on the promise of tax cuts and deregulation, expectations are growing that the US economy will go towards a ‘no landing’ rather than a soft landing. Photo = AP/Yonhap News With former U.S. President Donald Trump winning the presidential election on the promise of tax cuts and deregulation, expectations are growing that the U.S. economy will go towards a ‘no landing’ rather than a soft landing.
Due to high inflation in the United States, the Federal Reserve’s high interest rates will continue, and as a result, the hard landing scenario that the U.S. economy will fall into a recession later this year has already been discarded. Inflation will slow down and the economy will heat up at the same time. The soft landing scenario, which is expected to gradually cool down and stabilize, may also be discarded.
Former President Trump’s election as the 47th president of the United States in the presidential election on the 5th (local time) is leading to the so-called ‘no-landing’ scenario, in which the US economy will go beyond a soft landing and continue its high-altitude march without any slowdown.
However, there is also considerable pessimism that we must prepare for the worst case scenario in which Trump’s pledges during his presidential campaign trigger US inflation, lead to retaliatory tariffs from trading partners, cause US prices to rise, and growth to stagnate or slow down.
Trump’s policy priorities are expected to determine whether the U.S. economy will go into ‘no landing’, where growth continues, or whether it will go into stagflation, where prices rise and growth falls.
US soft landing will end when Trump takes office next year
Professor Joseph Sticklitz of Columbia University, winner of the Nobel Prize in Economics, gave a pessimistic outlook on the 12th.
In an interview with Yahoo Finance, Professor Stiglitz said that the U.S. economy is currently in a soft landing, but that this soft landing will end when Trump takes office on January 20th next year.
As inflation rises again, the soft landing will come to an end.
The prevailing view is that the large-scale tariffs, deportation of illegal immigrants, and tax cuts promoted by Trump will increase inflation.
Jennifer McKeown, chief economist at Capital Economics, said Trump’s proposed tariffs and immigration policies pose an “upside risk” to inflation in part.
If inflation rises, it may put a brake on the Federal Reserve’s interest rate cuts and affect economic growth.
In an analysis note sent to clients on the 14th, Goldman Sachs Chief Economist Jan Hatchers warned, “The biggest risk is broad tariffs,” and “This could seriously harm the U.S. growth rate.”
Stiglich said that if inflation rises, interest rates will also rise, and he was concerned that the global economy could slow down due to retaliatory tariffs from trading partners due to Trump’s high tariffs.
He was pessimistic that the U.S. and global economies could face high inflation and stagnant or slowing growth.
Neel Kashkari, president of the Minneapolis Federal Reserve Bank, also expressed concern that inflation could run high for a long time if a tariff war breaks out.
no landing
However, according to the latest Global Fund Manager Survey (GFMS) released by Bank of America (BofA) on the 13th, fund managers are optimistic that the U.S. economy will continue to grow, although inflationary pressures will continue to increase in the early stages of Trump’s second term in office.
Whether it is a soft landing or a hard landing, it is a ‘no landing’ scenario where there is no landing at all.
It is expected that high interest rates will continue due to inflationary pressures and the large US fiscal deficit, but economic growth will also continue.
The starting point for this optimistic outlook is that the U.S. economy is still marching high despite the Federal Reserve’s aggressive interest rate hike.
U.S. retail sales in October recorded an increase of 0.4% month-on-month, 0.1% higher than expected, and U.S. gross domestic product (GDP) continues to show a solid trend. The unemployment rate is in the low 4% range, which is close to full employment by historical standards.
In an analysis note sent to clients on the 15th, BofA’s U.S. economic analysis team pointed out that U.S. policy is facing major changes as the Republican Party takes control of the White House and both houses of Congress, and that the U.S. economy is at a crossroads amid large-scale policy changes.
The economy may continue to grow at over 3%, or it may fall into recession.
BofA said its base scenario is growth, but its level of confidence is low.
BofA added that when the second Trump administration takes office next year and its policy priorities are revealed, it will become clear where the U.S. economy will go.
Kim Mi-hye, Global Economics Overseas Correspondent LONGVIEW@g-enews.com
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What are the key economic indicators that you believe will signal the success or failure of former President Trump’s policy priorities once he takes office again?
Questions for the guests:
1. Professor Joseph Sticklitz: Based on your experience in economics, what are the potential implications of former President Trump’s policy priorities on the US economy? How do you think the soft landing scenario could end when he takes office next year, and what factors might influence this outcome? Additionally, can you discuss the risks associated with a possible “no-landing” scenario and how it might affect global markets?
2. Jennifer McKeown: In your analysis of former President Trump’s policies, how do you evaluate the likelihood of inflation occurring, and what measures do you think he should implement to mitigate its impact on the US economy? Additionally, what are your thoughts on the potential for retaliatory tariffs from trading partners, and how could this affect global trade dynamics?
3. Neel Kashkari: You’ve expressed concerns about inflation persisting in the early stages of President Trump’s second term. Can you elaborate on these concerns and discuss the underlying factors that could contribute to this scenario? Furthermore, how do you assess the Federal Reserve’s ability to manage inflation given the prospect of a “no-landing” economy?
4. Bank of America Economic Analysis Team: Your analysis suggests that the US economy is at a crossroads with significant policy changes on the horizon. Can you discuss the potential implications of these changes on economic growth and stability? Additionally, what indicators are you watching closely to gauge the likelihood of a recession or continued expansion?
Thematic Section 1: Impact of Trump’s policies on the US economy
Guest: Professor Joseph Stiglitz
Thematic Section 2: Inflation risks and global trade dynamics
Guest: Jennifer McKeown
Thematic Section 3: Managing inflation in a “no-landing” economy
Guest: Neel Kashkari
Thematic Section 4: Policy changes and economic outlook
Guest: Bank of America Economic Analysis Team
