Assessing Trump 2.0

The U.S. election results, with Donald Trump winning the presidency and Republicans controlling Congress, suggest policy shifts with significant implications for growth, inflation, and interest rates. Growth prospects for 2025 may be modestly higher due to potential tax, energy, and regulatory changes, though specific policies and personnel remain uncertain. Inflation could be impacted by proposed tariffs, potentially raising core CPI growth by 10 to 25 basis points if implemented aggressively, although the overall expectation is for inflation to decline but remain above Federal Reserve targets.

Fed policy is expected to maintain a less dovish stance, with rate cuts likely pausing early next year, aligning with a near 4% target for the terminal rate. However, detailed policies from the new administration are awaited to refine this outlook. Longer-term interest rates may experience increased volatility due to factors such as deficits, taxes, and Fed balance sheet considerations, with the U.S. 10-year Treasury fair value estimated around 4.25%.

The new administration's focus on inflation reduction, given its importance in the election, may influence economic strategies and investor assumptions. Overall, financial experts should remain vigilant for policy and personnel developments that may alter current forecasts and investment strategies.