Dan Ivascyn, the chief economic investment officer at Pimco that US equity markets could suffer a reversal after hitting record highs since Trump was elected president. But such “reflationary” policies, in a US economy that already has “a lot of momentum”, have the potential to feed through into inflation, he warned.
Trump has laid out a broad array of ideas aimed at providing tax reliefs, cutting prices and inflation, hiking tariffs and strengthening the economy. Trump has suggested he would get rid of the cap on state and local tax deductions, known as SALT. He has called for cutting corporate tax rates to 15 per cent for certain companies. Trump has promised an end to taxes on tips. He had said he would impose an across-the-board tariff of either 10% or 20% on every import coming into the US, as well as a tariff upward of 60% on all Chinese imports. He had also promised to reverse course and lower the prices of gas, groceries and other essentials
“It’s not as simple and easy as just a one-way reflationary trade where risk assets should rejoice,” Ivascyn told the Financial Times. “You want to be a little careful about what you wish for,” he said. With US inflation still stuck above the Federal Reserve’s target, “there is some risk that some of this exuberance can work its way back into both inflationary expectations or actual inflation,” he warned.
Dan Ivascyn said Trump’s economic policies were “coming at a time when you already have a lot of positive growth momentum, they could lead to this overheating”. While Ivascyn was not expecting a “massive inflation”, he said Trump’s policies could support growth over the long run and warned that “we certainly could get back to a point where the Fed becomes a bit concerned and where the market begins to price out some of the cuts”. “So, we think that means: be a little careful of risk asset valuations here,” he told The Financial Times.
His remarks come at a time when the Federal Reserve lowered the federal funds rate for a second consecutive time Thursday- after having made a jumbo-sized half-point cut as recently as September — the first reduction after pandemic.
The economic polices as suggested by Donald Trump have some economists questioning the path of interest rates heading into next year.
Recently, investing legend Jim Rogers has also advised people to have a cautious outlook on stock markets, especially those in the United States. The investing guru has said that Donald Trump’s ‘America First’ policy is not good even for the US, and also not for the world. Trade wars will exacerbate global inflation and push the world into another recession, Jim Rogers has warned.
