Hello there,
His inauguration is weeks away but for the United States and the global economy, Trump 2.0 is already rolling. Fed officials have dialled back expectations for rate cuts next year as they reckon with the prospect of sweeping economic changes.
U.S. central bankers have pencilled in estimates for higher growth next year than previously estimated, but also notably higher inflation. That's been a buzzkill for equity markets with investors now just factoring in one 25-basis-point rate cut in 2025.
Fed Chief Jerome Powell also caused bitcoin to stumble by saying the central bank had no desire to be involved in any government effort to stockpile the biggest cryptocurrency. Bitcoin is still ending the year on a tear, though – up nearly 60% since Trump won the election pledging to be a "crypto president".
On the fiscal front, the president-elect is already well in the fray. He's risking a government shutdown after coming out against a stopgap spending bill backed by Republican House Speaker Mike Johnson. That deal is now on life support, leaving lawmakers without a strategy to fund the government past a Friday night deadline.
Instead, Trump is calling on lawmakers to retool the spending deal and raise the debt ceiling as part of it so that the borrowing limit will go up while Joe Biden is still in the White House.
Trump also loomed large over the political drama in Canada this week when Finance Minister Chrystia Freeland quit after clashing with Prime Minister Justin Trudeau on how to handle possible U.S. tariffs.
And in Asia, the Bank of Japan kept ultra-low interest rates on hold as the threat of Trump's policies cast a shadow over its export-reliant economy.
Speaking of trade relations, they are at the heart of the transatlantic economy – the topic of this week's Reuters Econ World podcast. Ulrike Malmendier, a member of the German Council of Economic Experts, joins me for a discussion on what Europe should be doing to bolster its defences against a possible trade war. Listen here.
We touch on the political crises in Germany and France in this week's pod. Italy, by comparison, is an oasis of uncharacteristic political calm. That's likely to boost its government bonds next year, despite a weakening economy.
That's it for this newsletter for 2024, I'm taking a break to overindulge over the holidays. The pod and this newsletter will be back in early January.
Thank you to everyone who listened to the show and read the newsletter this year, keep the comments coming! And I hope you all get to put the feet up these next few weeks.
'Til next year,
Carmel
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