As former President Donald Trump gears up for a potential return to office in November, economist Ludovic Subran warns of a potential inflationary surge.
Subran, the chief economist at Allianz, predicts that Trump’s reelection could have significant repercussions for the US economy, exacerbating inflationary pressures that are already a concern for financial markets and policymakers.
The personal consumption expenditures (PCE) price index, a key measure of inflation, increased by 0.1% for the month and 2.5% for the year in June, aligning with Dow Jones estimates.
Federal Reserve Chair Jerome Powell expressed satisfaction with this inflationary progress during a recent forum in Portugal.
However, Subran foresees a troubling scenario if Trump returns to the White House in 2024.
According to Subran, Trump’s policies could act as a “triple whammy” for inflation.
The economist anticipates that Trump might implement aggressive measures such as deporting 7 million people, imposing higher tariffs, and possibly reactivating the Plaza Accord, which could devalue the US dollar by up to 30%.
These actions, Subran argues, could add one to two percentage points to inflation in 2025.
Fed may not cut interest rates in 2024
Subran projects that the US Federal Reserve will cut interest rates by 50 basis points by the end of 2024.
However, he believes that the Fed may struggle to lower rates further in 2025 if inflation resurges due to Trump’s policies. The central bank’s ability to manage inflation could be compromised, potentially undermining its credibility.
The Federal Reserve is set to hold a policy meeting this week, but Subran does not anticipate any rate cuts before September.
The economist’s concerns underscore the potential challenges the Fed may face in maintaining economic stability if Trump’s administration reintroduces high inflationary pressures.
Trump reelection is a negative for Europe
On “Squawk Box”, Ludovic Subran agreed that Donald Trump may be positive for the United States in the short term but warned that he’ll turn negative in the mid-term “if there is a boom bust”.
Additionally, he expects a Trump government to be a negative for Europe “on day one”. That’s because he’s “America First” which means others, including Europe, will come second.
The Republican will likely reenact the Sino-American rivalry and is “talking about solving the war in Ukraine in 24 hours” – all of which together could dislocate the markets in Europe, the economist added.
Note that Donald Trump has already expressed confidence that Kamala Harris would be easier to beat in the 2024 U.S. elections than Joe Biden who ended its reelection campaign earlier in July.
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