During his campaign, US President elect Trump put forward a series of economic proposals, including reducing corporate tax rates, extending personal income tax cuts, and imposing tariffs on imported goods. Analysts generally expect that overall, Trump's policy of "reducing taxes domestically and increasing taxes externally" will reignite inflation in the United States.
Jeremy Siegel, a top American economist and finance professor at the Wharton School, said on Monday that in order to avoid losing the support of stock and bond investors, Trump may not fully implement his proposed economic policies.
Siegel stated in a media interview that he believes Trump will take a firm pro market stance in the next term, even at the cost of sacrificing some of the economic policies he has proposed. He pointed out that Trump used to be keen on using the stock market as a measure of presidential success, which is why he may not want to disrupt the current bull market.
President Trump is the most pro stock market president in our history, "Siegel added. In my opinion, he is unlikely to implement policies that are detrimental to the stock market
Economists believe that some of the policies proposed by Trump will increase the federal deficit and trigger higher inflation. Last week, the bond market responded to these policies. After the election, the yield of US 10-year treasury bond bonds soared to more than 4.4%, the highest level since July.
Although the yield of US treasury bond bonds has since fallen back and stabilized, Siegel said that this is a sign that bond investors may be ready to protest any policy that leads to increased government debt or inflation.
This may also indicate that investors are concerned about the possibility of rising inflation and expect the Federal Reserve to raise interest rates.
I think the rise in bond yields after Trump's victory last Wednesday was a warning, saying 'Hey, you know, be careful of what you're doing. We're there, and we're skeptical about all the tax cuts you promised,' "Siegel said. Both the bond market and the stock market will become significant constraints on many of Trump's plans
Siegel pointed out that in the Republican led Congress, Trump's proposal to extend the 2017 tax cuts looks easy, although he expects that Trump's other tax cut proposals will face challenges. Siegel predicts that if Trump implements all of his proposed tax cuts, bond yields may ultimately exceed 5%.
Therefore, I believe that the trend of rising long-term interest rates will accompany us, "he added.
Siegel also stated that Trump is unlikely to seize control from the Federal Reserve. Although it has been reported that Trump is developing plans to exert greater influence on the Federal Reserve's policy decisions, this move may not be welcomed by the market.
He may want more negotiation, but the market likes the independence of the Federal Reserve. If he substantially undermines the independence of the Federal Reserve, it will be detrimental to both the bond and stock markets, "he added.