We look at how Trump's policies pan out across domestic agenda & global turf. Trump’s domestic agenda is likely to focus on cracking down on immigration, cutting taxes, and reversing Biden’s green agenda. Trump’s transition team is likely to be much better prepared than in 2016, ensuring that the administration can start implementing its domestic policies starting from inauguration day in January. On the global front, a strongly protectionist US agenda is likely to take shape, with tariffs used as the main tool. Trump's transactional nature might give shape to tariff wars with various nations as per their own responses. In Asia while China might be the main focus for tariffs, we can expect traditional US allies such as Japan & South Korea to face some music. Trump has repeatedly said he would end the war in Ukraine, and there is an expectation that he will put strong pressure on both Ukraine and Russia to come to the negotiating table. Ukraine is likely to cede it's lost territory in return for a security guarantee from NATO. In Europe, leaders are likely to be deeply concerned about the impact of Trump 2.0 on transatlantic relations, both geopolitically and economically (via tariffs). In the Middle East, Netanyahu’s Israel will find a stronger ally in Trump than in a Democratic administration; at the same time, pressure on the US could increase if Netanyahu sought to expand the war to a point that might force direct US involvement. Trump has the legal authority to implement tariffs without Congressional approval, and we expect trade restrictions will be imposed quickly. We have raised our forecasts for annual average inflation in 2025 and 2026 to 3.0% and 2.6%, respectively (up from 2.3% and 2.1%). Unified government gives Trump a free hand to extend provisions of the Tax Cuts and Jobs Act (TCJA), which are set to expire in 2025. Most importantly how will Fed react to the new administration. To predict future, we decided to look in past. So we looked at Dec'16 Fed minutes vs the Nov'16 minutes. We observed that while fiscal was referenced only 17 times in the November 2016 transcripts, references exploded more than ten-fold to 212 in December. The minutes to those meetings showed a sharp rise in the reference of fiscal policies from 1 in November to 16 in December. Hence we expect that the specifics for Fed policy next year will depend on the timing of tariffs. So we maintain our view that Fed might go a long status quo after cutting every meeting 25 bps till the March meeting. Cuts can resume once inflation has normalized. We forecast 50bp of easing in 1H2026. Our terminal rate expectation is now 3.5%, up from our prior forecast of 3.125%.
