Rates, inflation and the assassination attempt on Trump: outlook for US markets
Financial markets/economy
Posted by MoneyController on 15.07.2024
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Inflation, rates and elections, including the assassination attempt on former President Donald Trump, are some of the factors influencing the dynamics and outlook in US markets these days.
After the inflation results, which fell to 3% in June, markets seem increasingly inclined to believe that the US central bank, the Federal Reserve (Fed), will cut interest rates not just once but twice this year. If this were to happen without an economic recession occurring, it would be the so-called 'soft landing'. In other words, the gradual end of restrictive monetary policies would be due not to a critical economic situation, but to the Fed's achievement of its inflation target.
In the meantime, the stock exchanges reacted to the attack that (during a rally in Pennsylvania) threatened to kill former president and White House candidate Donald Trump, who was fortunately only injured in the ear. As Tom Westbrook and Vidya Ranganathan write in 'Reuters', even before the attack occurred, the markets reacted to Trump's increasing chances of victory in this way: the value of the dollar rose and the Treasury curve steepened.
Westbrook and Ranganathan list a number of measures that could be expected should Trump become the US president again: more aggressive trade policies and less stringent regulations on climate and cryptocurrencies (the value of Bitcoins has risen by 7% since the attack); a tax cut on corporations and individuals, which would be followed by deficit growth. In the 'Reuters' article, Michael Purves, CEO of Tallbacken Capital Advisors, makes some remarks in this regard: if Trump wins and implements his policies, Purves explains, we could see substantial bond sales.
But back to the question of interest rates. The fact remains - as Vivien Lou Chen points out in 'Market Watch' - that the situation of Fed Chairman Jerome Powell is still complicated: on the one hand, a rate cut too early could jeopardise the efforts made so far to limit inflation (which would therefore risk returning to growth); on the other hand, a restrictive monetary policy that lasts too long could put the US economy under increasing pressure, to the point of pushing it, in the worst case scenario, into recession.
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