JPMorgan Asset Management's Chief Global Market Strategist, David Kelly, has expressed concerns that former President Trump's aggressive tariff policies could slow down the global economy and increase inflation in the United States. These risks were largely overlooked during the market rally following the U.S. elections. Kelly emphasized that the suggested tariffs could lead to stagflation—an economic condition characterized by rising inflation and declining growth. He warned that retaliatory measures could exacerbate global tensions, referring to these scenarios as a "tariff war."
During his campaign, Trump proposed imposing tariffs of 60% on Chinese imports and 10% to 20% on goods from other regions. Despite concerns about the potential harm to the U.S. economy, Trump argued that tariffs are beneficial, citing the U.S. economic boom in the 19th century when high tariffs were in place. The exact policies Trump will implement remain uncertain, but his election victory is prompting multinational companies to reassess global supply chains and consider price hikes to offset increased costs. Investors are also contemplating the effects of rising protectionism on financial markets and trade partners, including Europe.
One of Trump's key advisors, Robert Lighthizer, who served as the U.S. Trade Representative, recently advocated for protectionist policies in the Financial Times. Wall Street strategists have also issued warnings, noting that bond yields have risen sharply due to expectations that Trump's tax cuts and tariff plans will deter the Federal Reserve from cutting interest rates. Optimism about Trump's policies boosting corporate profits has largely overshadowed these concerns in the U.S. market.
TD Securities strategists, led by Oscar Munoz and Gennadiy Goldberg, predict that the Federal Reserve may pause interest rate cuts in the first half of 2025 as they assess the impact of Trump’s policies. JPMorgan's rate strategists have also lowered their expectations for Fed rate cuts. Kelly believes a clash between the Federal Reserve and the Trump administration is likely because Trump's policies might conflict with monetary policy, which aims to curb economic growth and inflation.
Federal Reserve Chair Jerome Powell has refrained from commenting on how Trump's policies will affect future Fed actions. Kelly noted that the Fed is avoiding assumptions or predictions regarding tariffs or fiscal policies, although they might eventually need to address the issue.
