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Assessing the Impact of Trumponomics

​In the wake of the stunning US election outcome this week, markets are still sorting out the implications. Analysts do not have an impressive record of predicting what an unorthodox and mercurial figure like Donald Trump may do. In fact, anticipating the economic and market impact of President Trump feels a lot like trying to catch a butterfly with tweezers.

Here are three things we think we know:

• Trump will be most successful in pushing forth his populist agenda in areas where the President has most latitude. Areas like trade, national security and border control do not require Congressional approval and he can act unilaterally. We expect these areas to be the focus of his administration.

• President Trump will have an opportunity to shape the Federal Reserve. There are presently two vacant seats on the Board of Governors and a new Fed Chair will need to be appointed in early 2018. The FOMC will become slightly more hawkish and have a more limited view of its reach.

• As far as markets, the initial sentiment is that the softening of fiscal austerity will prove inflationary and lead to higher interest rates. Indeed, this sentiment provides further fuel for current trends. However, the most recent surge is overdone in our view. It remains unclear how actual inflation will respond and the market is not fully considering the dovish pivot by the Fed in December.