Risks Ignored by the US Stock Market? Morgan Asset Management: Trump's Tariff Plan May Trigger Stagflation Issues

According to Zhitong Finance, David Kelly, Chief Global Market Strategist at JPMorgan Asset Management, stated that Trump's aggressive tariff plan could slow down the global economy and put upward pressure on U.S. inflation, highlighting risks that have been largely masked during the stock market rebound after the U.S. elections. Kelly said, "The first smoke signal indicates that the tariff measures will be very aggressive, and there is almost no panacea for stagflation. Stagflation means rising inflation while the economy is declining. Retaliatory measures will only make the whole world worse. The tariff issue will trigger many conflicts. If you hit someone on the nose, they will retaliate. That’s why they call it a trade war." During the campaign, Trump stated that he could impose a 60% tariff on products from China and a 10% to 20% tariff on goods from other places. He dismissed concerns that tariffs would harm the U.S. economy, calling tariffs the "most beautiful word" in the dictionary, and once pointed out that the U.S. achieved prosperity in the 19th century when it imposed high tariffs without a federal income tax. It is still unclear which specific policy plans Trump will push forward, but his victory has prompted multinational companies to rethink global supply chains and discuss raising prices to offset costs. Meanwhile, investors are considering the impact of rising protectionism on financial markets and U.S. trade partners, including Europe. Trump's key advisor, Robert Lighthizer, who served as U.S. Trade Representative in his first administration, recently advocated for protectionist policies in a commentary for the Financial Times. Other strategists on Wall Street have issued similar warnings. In the bond market, bond yields have risen sharply as traders speculate that Trump's tax cuts and tariff plans will prevent the Federal Reserve from cutting interest rates. In the U.S. stock market, these concerns have largely given way to optimism that his policies will boost corporate profits. Strategists at TD Securities, led by Oscar Munoz and Gennadiy Goldberg, expect that as central bank policymakers assess the impact of Trump's policies, the Federal Reserve will pause interest rate cuts in the first half of 2025. JPMorgan's interest rate strategists have also lowered their expectations for Fed rate cuts. Kelly believes that a conflict between the Federal Reserve and the Trump administration is likely to occur eventually, as Trump's policies may be inconsistent with monetary policy, which still focuses on curbing economic growth and controlling inflation. However, Fed Chairman Powell declined to comment last week on how Trump's policies would affect the Fed's future actions. Kelly added, "The Fed will not assume, speculate, or predict what tariffs or fiscal policies will be. At some point, they will have to fight, but I think they do not want to raise this issue right now."