Big fiscal deficit with Trump? Maybe not
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BIG FISCAL DEFICIT WITH TRUMP? MAYBE NOT
These days, the mantra in the financial world is that U.S. President-elect Donald Trump will usher in bigger budget deficits, more inflation, and higher long-term bond yields.
Economists at Eurizon are inclined to differ, as Elon Musk set the goal of cutting $2 trillion in federal spending.
They see fiscal retrenchment together with positive supply effects through de-regulation, spending cuts, and tax cuts.
They forecast the U.S. federal debt position to be contained at around 95% of GDP, compared to 99% of GDP now and 109% currently projected by 2028, assuming that Musk will eventually trim $1 trillion dollars from the annual budget by 2028.
At the end of the day, "the net impact (of the fiscal policy) on inflation and bond yields could very well be negative," they argue.
They acknowledge that new tariffs might be inflationary, as they could lead to higher prices for imported goods, thereby increasing the cost of living for consumers.
"Trump 2.0 is adopting a 'small government' fiscal posture – the traditional conservative government's preference."
An important notion "is the GOP’s (Republican Party) view that lower taxes could incentivise companies and individuals to work harder and make greater efforts to achieve business successes," they say.
(Stefano Rebaudo)
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