Inflation and the dollar... Why do markets fear Trump’s policies?

Economists are raising serious concerns about the potential for renewed inflation in the United States if Donald Trump's proposed policies are implemented.

According to Bloomberg, the Federal Reserve is preparing to cut interest rates next September, thanks to an improving labor market and moderate consumer spending.

The Fed's preferred measure of inflation recently fell to 2.6%, approaching the 2% target, suggesting that a long-awaited economic soft landing may be within reach.

However, San Francisco Fed President Mary Daly warned that “we don't want to get to a point where we start to see the labor market weaken significantly—to falter—because by then, it's often too late to pick it back up again.” ".

Trump's policies

Economists warn that Trump's proposed tax cuts, tariff increases, and immigration restrictions could all reverse recent economic progress made under the Biden administration.

Democrats believe that these measures could lead to a significant rise in inflation and destabilize global trade.

According to Bloomberg, Americans are still dealing with higher costs for goods compared to pre-pandemic levels.

While the GOP continues to blame President Joe Biden for persistent inflation, experts point out that Trump's policies could undo the Fed's hard-won achievements in stabilizing the economy.

The agency notes that the danger posed by Trump's economic approach is confirmed by the current political climate. While Democrats tout the strengths of a booming US economy, low unemployment and an imminent victory over inflation, Trump's followers remain skeptical.

A growing number of analysts believe that the GOP's focus on tax cuts that primarily benefit the wealthy, proposed tariff hikes that spark another trade war with China, and immigration restrictions that Republicans blocked earlier this year could hurt... Harm the delicate balance that has been achieved so far, according to the agency.

The dollar dilemma: Will it weaken under Trump?

In a detailed analysis conducted by Reuters, Citi strategists expressed that Trump's presidency is unlikely to weaken the US dollar, despite the former president's public comments indicating a desire for such an outcome.

Experts quoted by Reuters insist that the US elections will ultimately be positive for the dollar, and these expectations are likely to be fully priced in by next November 5.

"We reiterate why we believe the election will be positive for the dollar in our latest currency market forecasts. However, we recognize that Trump's comments in a recent interview imply a desire to weaken the US dollar," the strategists say.

Experts advise caution, noting that market sentiment can be very volatile, especially with the elections approaching.

Reuters quotes them as recommending waiting until next August or September to consider buying deals for the US dollar, as this period historically witnesses more active trading in anticipation of the election results.

Analysts also highlight Trump's focus on trade and its effects on currency markets, especially regarding the EUR/USD exchange rate.

High economic risks

Bloomberg believes that as the United States prepares to hold its presidential elections, economic risks are extraordinarily high.

President Biden is facing pressure to abandon his re-election bid amid calls from Democrats after a lackluster debate performance.

In contrast, Donald Trump, having survived an assassination attempt and accepted the Republican nomination, continues to promote policies that economists warn could lead to inflation and market instability.

Trump's recent speech at the Republican National Convention - according to Bloomberg - was characterized by a mix of controversial topics and remarks, including references to fictional characters and controversial political figures.

Many believe that his announcement of the appointment of J.D. Vance, a senator from Ohio, as his deputy indicates an extreme right-wing shift in the Republican Party, paving the way for major political transformations if he wins the presidency.

The upcoming US presidential election brings with it a host of economic uncertainties, according to Bloomberg. Trump's proposed policies could significantly impact inflation and market stability, while global trade dynamics continue to evolve.

Economists and market strategists stress the need to navigate cautiously during these turbulent times, as the outcomes of these policies and the elections themselves remain unpredictable.