Economic outlook – Bad policy makes bad economics

The first 100 days of Donald Trump’s term caused consternation because of the radicality of his tariff policy. Despite a few retreats, the following 100 days have simply confirmed that he intends to apply his programme in full, namely more tax cuts, a tougher immigration policy and incessant attacks on the Fed, an institution whose independence he finds intolerable. Putting up trade barriers, reducing the supply of labour, deepening budget deficits and placing the Fed under political control are all inherently inflationary measures, and they are bad for business conditions. Recently, worrying cracks have appeared in the job market. This may be a true test of the resilience of consumers. Long-term interest rates are under pressure just as the market expects the Fed to cut rates. Not an encouraging sign. The rest of the world has not absorbed the Trump shock too badly to date, partly because new tariffs were slow to come into force. In Europe, the ECB has finished recalibrating its policy. In Germany, the fiscal stimulus is still awaited. France, overindebted and in a political deadlock, is at risk of coming under severe pressure from the financial markets. In short, the global macroeconomic outlook is fairly bleak.