TD casts an eye over the new administration’s agenda – and its possible economic effect
With Donald Trump’s inauguration as US president for the second time rapidly nearing, TD Bank chief economist Beata Caranci has said the president-elect will inherit a strong economy – and that the Federal Reserve will adopt a “go-slow” approach throughout next year.
Caranci said the Federal Open Market Committee (FOMC) seemingly remains committed to bringing interest rates lower, but added that it was unlikely to move at the same pace seen over the past two months when it trimmed its funds rate by 100 basis points.
An upward shift in yields within fixed-rate loans, meanwhile, is likely to impact Americans who intend to take out long-term business loans and mortgages. Still, Caranci said short-term borrowers may find relief in floating rates moving towards the other direction following the cuts on the policy rate.
Despite concerns surrounding inflation, consumers continue to be the beacon of hope for the US economy as an impulse to spend persists. With a strong consumer spending pattern seen in Q3 2024, it appeared to be continuing forth in the fourth quarter. Caranci noted that there may be a greater impulse in spending in 2025 if consumer confidence sees an improvement.
She also highlighted the potential impact of Trump’s promises to tighten security, introduce sweeping tax cuts, and expand deregulation. TD Economics had previously noted that the federal deficit could grow if Trump implements those tax promises – but Caranci said that while the new administration’s vow to administer sweeping deportations could also prove costly, they may not take place in 2025 because of logistical complexities.
Caranci said many of Trump’s policies could potentially be good for the economy, although questions linger over how they will be funded. “We know what the initiatives are. We don’t know what the price tag is,” she said.
Ultimately, financial markets are likely to see a “potentially transformative period,” TD said, under the second Trump administration.
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