Global markets are closely watching the incoming Trump administration to anticipate its potential economic impact. His cabinet selections and campaign rhetoric suggest a commitment to key pledges, with loyalty at the forefront of his leadership priorities. Below, we outline the president-elect’s four major policy objectives and their implications.
and forward estimates
Source: Anchor
Tariffs and Trade Policy
Trump has proposed significant tariffs on imported goods, initially suggesting rates as high as 60% for Chinese goods and 10% for imports from other countries. While markets expect less extreme measures, a base case of 20-25% tariffs on Chinese goods appears plausible in the first half of 2025. This would likely have a limited effect on US economic growth but could push inflation up by approximately 0.35% as a one-off event. Such inflationary pressures are unlikely to derail the Federal Reserve’s current trajectory for rate cuts. However, broader tariff increases could negatively impact bond and equity markets.
Immigration Policy
The administration’s focus on reducing immigration, especially among lower-skilled workers, may lead to a 20% decline in new arrivals next year. With the US already near full employment, this could exacerbate labour shortages, creating inflationary pressures and dampening economic growth. Combined with strong economic data, this is contributing to the market’s cautious outlook on further rate cuts.
Tax Policy
Trump’s stance on taxes centres on extending expiring tax concessions, which will cost the US Treasury over $4 trillion in lost revenue. While markets are not anticipating additional cuts beyond these extensions, the move will likely require increased government borrowing. The US 10-year bond yield, currently around 4.4%, could climb to 4.75% due to higher issuance.
Source: Anchor
Government Efficiency and Spending
Despite public excitement over Elon Musk’s involvement with the Department of Government Efficiency (DOGE), markets remain sceptical. Modest spending cuts and benefits are expected at best. As a result, fiscal policy will likely lean on bond issuance to fund extended tax cuts.
Anchor’s Forecast
Considering the above, Anchor expects further US rate cuts totalling 1.25% this cycle, with the Fed funds rate reaching 3.25%-3.5%. Longer-dated bonds appear fairly valued, with their future direction hinging on clarity around tariffs and tax policies in 2025.
South African Outlook
Domestically, South Africa’s economic landscape is improving. Standard & Poor’s has revised the country’s outlook to positive, signalling gradual recovery. While an immediate credit rating upgrade is unlikely, the trajectory appears upward.
The South African Reserve Bank (SARB) recently cut interest rates by 0.25%, bringing the prime lending rate to 11.25%. SARB’s updated models
Source: Thomson Reuters, Anchor
Information courtesy of Nolan Wapenaar, Co-Chief Investment Officer/Head of Fixed Income of Anchor and interpreted by RockWealth Capital.
