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Prospects: Trump’s First 100 Days
- Investors face considerable uncertainty as the transition to a Trump presidency is virtually unprecedented. The first 100 days provide him with an opportunity to make a splash and provide a sense of where his administration is going. So far investors have taken a generally rosy view of what will happen.
- On tax and budget policy, president Trump has to work with Congress to get anything done. His tax and spending plans, including his infrastructure tax break, will receive a mixed reception in Congress. Legislation is unlikely to come before mid-year and the final bill, particularly on the corporate side will involve smaller tax rate reductions.
- President Trump has considerable discretion in trade policy and could slap on sizeable tariffs immediately. DE thinks he will threaten tariffs and then try to cut deals. But the threat of debilitating trade wars is very real. On immigration, he can start to build a wall and begin selective deportations, but the initial macroeconomic impact would be quite small. But eventually cutting labor supply could lift inflation and lower growth.
- On health care, Trump and Congressional Republicans may make changes to Obamacare without a new system in place. This could lead to unraveling the entire program and the loss of health insurance to over 20 million. Republicans could be blamed creating an enormous backlash.
- President Trump can make relatively small regulatory changes unilaterally but major changes generally need new legislation from Congress. Proposed Republican financial market legislation might favor smaller banks, who may be more willing to trade higher capital requirements for reduced regulation. Moreover, some think that nonbank financial companies may be made exempt from SIFI oversight, which could increase systemic risk, as these firms are expected to grow in size and importance.
- While Trump can make things unpleasant for the Fed, he will not be able to make real changes until he can replace the chairman, whose term ends in early 2018. Even then, major changes in policy might be hard to undertake, even if Congress passes new legislation to “reform” the Fed, given expected resistance from the powerful and large staff.