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Will Trump be the new Reagan?


The essential

US interest rates rose sharply in the wake of Trump’s election, due to the anticipation of a highly expansionary budget policy (tax cuts, increased infrastructure spending). The continuation of this rise seems somewhat unwarranted in our view. Donald Trump is claiming, and being inspired by, Ronald Reagan’s legacy. But there is no comparison. In the early 1980s, the US economy was in stagflation. The recession and inflation required a combination of restrictive monetary policy and expansionary fi scal policy.

Today, the situation is quite different: (1) the economy is at the end of the cycle (fiscal multipliers are lower in this situation); (2) inflation is much lower (the Fed can remain accommodating); (3) long-term rates are also much lower (less downside potential in the event of a shock); (4) companies are much more indebted now than they were in the early 1980s (less investment to be expected); (5) government debt is now more than twice as large as before (less room for manoeuvre). Absent the threat of recession, we should not expect a broad plan to stimulate the economy financed by a deficit.

CROSS ASSET (Download)

December 2016 

Decembre 2016

The Article


BOROWSKI Didier , Head of Macroeconomic Research
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Will Trump be the new Reagan?
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