What if Trump returns to the presidency? Fed changes, inflation outlook and more

If Donald Trump returns to the presidency, Nomura analysts expect significant shifts in economic policy, particularly focusing on tariffs and tax policy.

The firm believes a second Trump term would likely emphasize extending the expiring provisions of the 2017 Tax Cuts and Jobs Act (TCJA) and implementing new tariffs.

One notable change, according to Nomura, would be in Federal Reserve leadership, although Trump’s ability to directly influence monetary policy would remain limited. Despite this, higher tariffs are anticipated to be modestly inflationary.

However, the impact on consumer prices would be less than proportional. “Inflation and fiscal expansion are likely to lead to higher interest rates, especially with the Fed remaining hawkish,” analysts noted.

This inflationary pressure would be counterbalanced by the economic growth potentially stimulated by business tax cuts, despite the uncertainties surrounding policy.

In terms of tariffs, the investment firm believes Trump’s return would likely see a continuation of his aggressive trade stance.

While he has proposed a sweeping 10% tariff, they state that historical precedent suggests not all proposals might be fully realized. However, Nomura says his campaign’s suggestions, such as raising tariffs on Chinese imports to 60%, indicate a probable resurgence of a combative approach towards major trading partners.

Furthermore, they state that tax policy will also be crucial, with many provisions of the TCJA set to expire in 2025.

However, Nomura states: “Trump’s agenda will depend on the composition of Congress, as changes to tax policy cannot be implemented without congressional approval, in contrast to a President’s authority regarding tariffs.”