Reuters Econ World: 'America first'

Reuters

Reuters Econ World: 'America first'

Nov 7, 2024 at 9:58 pm GMT

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By Carmel Crimmins

Nov 7 -Donald Trump’s victory is a split-screen moment for the global economy. His return to the White House and a possible Republican sweep of Congress puts in play a whole host of policy changes that could rewrite the global outlook for growth.

Trump’s “America first” agenda of trade tariffs, deregulation and tax cuts is fuelling investor bets of a boost to domestic growth and a sucker punch everywhere else. Financial markets have frantically repriced the interest-rate outlook with traders now expecting the Fed to cut less than previously anticipated over coming months.

The U.S. central bank did cut its benchmark lending rate by a quarter percentage point as expected on Thursday. Chair Jerome Powell is already dealing with Trump 2.0. Asked in the post-meeting news conference if he would resign if he’s asked by Trump to go, Powell responded “No” and later said an attempt to oust him before his term was over is “not permitted by the law”.

Trump’s reelection has raised questions about whether he would seek to limit the Fed’s independence. We took a look at the question of central bank independence on a July 4 Reuters Econ World pod. Listen here.

Over on this side of the pond, in Europe, rate bets are going in the opposite direction. More cuts are now expected as the spectre of a tit-for-tat trade war looms.

Trump’s victory couldn’t have come at a worse moment for the European Union. The bloc is the biggest exporter to the United States and its traditional power brokers – Germany and France – are consumed by domestic politics.

Germany’s Chancellor Olaf Scholz is facing a snap election after sacking his finance minister and Europe’s largest economy is expected to shrink for the second year running in 2024. The wider euro-zone economy has barely grown in the past year and a trade war could force the European Central Bank to cut interest rates below 2% next year.

At uncertain times like these, central bankers need a guidepost to help them navigate where they’re going, monetary policy-speaking. Drumroll please for the “natural rate” of interest – that elusive, Goldilocks rate that so many economists love to hate. It’s the topic of this week’s Reuters Econ World pod. I’m joined by Reuters editor at large for markets Mike Dolan to try and make sense of this most crucial, and abstract, of concepts. Listen here.

We now know that anger over years of inflation helped fuel Trump’s win. So, if inflation is so politically toxic, will the president-elect really push through policies that are widely expected to rekindle consumer-price rises? Mike has an interesting column on whether Trump will walk the talk on his economic agenda.

Certainly fears about inflation and a ballooning U.S. deficit are alive and well on the Treasury market. The benchmark 10-year yield rose 14 basis points on Wednesday and while it retraced some of that on Thursday, the point has been made.

As always, I'd love to hear from you. Find me on LinkedIn.

The headlines

The podcast

“It's a fairly straightforward idea … If everything was going fine, if the economy was working as it should … then what would that theoretical interest rate be … You'd think that would be relatively straightforward. But in fact, trying to calculate that is a bit of a nightmare and most people spend their entire working lives trying to chase this thing."

Mike Dolan on trying to work out the natural rate of interest.

The real world