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JPMorgan analysts are sounding the alarm about the potential inflationary impact of Donald Trump's win in the upcoming presidential election and argue that markets have not adequately priced in the risks involved.
In a note to clients, analysts said key policies proposed by the Trump campaign could raise inflation. “Markets do not yet appear to have priced in much risk premium for the inflationary effects of the Trump campaign's major policies,” analysts wrote.
The memo highlighted several policy goals stated by the Trump campaign:
Extension of 2017 Tax Cuts: Trump aims to extend the tax cuts that were implemented in 2017 and will expire at the end of 2025. This move could lead to a broader fiscal and debt trajectory for the United States, contributing to inflation.
Severely Restricting Immigration: The campaign's plan includes deporting foreign-born illegal immigrants, which could put upward pressure on wages due to a tighter labor market.
Imposing Tariffs on Imports: Imposing broad tariffs on products imported into the United States would likely cause domestic prices to rise, increasing inflationary pressures.
Additionally, analysts pointed out that Trump plans to replace FED Chairman Jerome Powell after his term ends. While there has been “some talk” of changing laws to reduce the Fed's independence, such changes appear unlikely to pass Congress, even if Republicans control it. However, rhetoric alone could influence markets by raising long-term inflation expectations and steepening the US Treasury curve.
The note, written before Thursday's Trump-Biden debate, concluded that Trump's policies could pose significant upside risks to inflation, inflation expectations and the issuance of US Treasury bonds.
*This is not investment advice.