US: The Trump Timeline - Rabobank

Philip Marey, Senior US Strategist at Rabobank, suggests that Trump wants to provide the US economy with a much needed fiscal policy stimulus and the fiscal impulse will be larger and reach the economy earlier if the Republican Party indeed controls both the White House and the Congress.

Key Quotes

• “A Trump presidency will benefit high income groups and businesses the most.

• The effects of his fiscal policy plans on economic sectors will be asymmetric. A Trump presidency will benefit the fossil energy sector, the defense industry and infrastructure.

• Unfortunately, the impact of the fiscal impulse will be weakened by protectionism. In case of a trade war (which could break out in early 2017), the first negative domestic impact will be on US importing firms, followed by US exporting firms if trading partners retaliate. Even services firms in trade intensive regions may be affected negatively.

• The more effective the fiscal impulse, the faster the Fed can hike in 2017 and beyond. Both effects should have an upward impact on rates. However, episodes of risk aversion due to trade conflicts could push rates down again temporarily. In case of a full scale trade war this downward effect will be more sustained, especially if the economy falls into recession. What’s more, the positive impact of the fiscal impulse could be offset by possible trade conflicts. This could still prevent the Fed from hiking in 2017.

• President Trump is expected to replace current Fed Chair Yellen when her term expires in February 2018, which could lead to the Fed changing its course.

• By the time Trump runs for re-election, four years may have passed without a serious effort to curb the unsustainable spending on entitlement programs and the rising public debt.”