Leitmotif 2: Too many moving parts

With so many economic policies in flux, economic uncertainty is much higher

A major factor increasing Uncertainty over the economic outlook, particularly for the US, is the wide scope and deep impact of proposed changes to economic policies in the second Trump administration. The economic agenda is expected to include:

• Tariffs of unknown scope and size, albeit assumed large in both dimensions, applied with ambiguous rational: are they an economic policy, or a coercive tool of statecraft (see Leitmotif 9)?

• Sharp curtailment of unskilled immigration, the potential expulsion of millions of illegal immigrants, and perhaps even restrictions on skilled immigration (e.g. H-1B visas).

• Deep cuts in both the Federal bureaucracy and government expenditure.

• An extension of Trump 1.0 tax cuts and potential enactment of further tax cuts.

• Broad and deep deregulation and reform of financial regulators.

The conventional wisdom holds that these policies will be inflationary. But with so many moving parts, some moving in opposite directions, and questions over the magnitude and effects of each, the joint effect is far from clear. Breaking down the potential effects and likelihood of each both exposes flaws in current market pricing and maps potential opportunities as clarity over policies develops.