- The Fed remains the test case for whether any central bank can ‘normalise’ rates. We expect it to try, but fail - whoever’s US President. Even the volatility that could accompany a Trump-led paradigm shift (our risk case) does not point to an aggressive Fed.
- We set out the Presidential candidates’ main macro differences. Clinton’s proposals are stimulatory, but closer to the status quo. Trump’s likely, more front-ended fiscal splurge would be muted by the threat of protectionism, & the possible hit to US asset prices.
- Raising the $18.1trn debt ceiling will be the first test of the new administration. Not dealing with it effectively offers an additional route to the recession already implied by the Treasury curve.
- While Congress would oppose Trump’s aggressive anti-trade proposals, the risk is he could impose tariffs unilaterally. His immigration plans might spur wage growth, but the inflation that protectionism spawns could be the ‘wrong sort’ (cost push).
- In which case, a new global risk emerges. Without care, an unhelpful jigsaw piece from the 1930s that was largely absent in 2008 - retaliatory trade barriers - might yet crash into place...
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