Trump 2.0 is coming on strong, is the "soft landing" of the U.S. economy in jeopardy?

Since the beginning of this year, investors have become increasingly confident that the U.S. economy will achieve a "soft landing." However, the election of Trump as the next president complicates this outlook. Some economists now believe that if Trump fulfills his key campaign promises, the U.S. may face another surge in inflation. "The economy is soft landing," said Nobel laureate and Columbia University professor Joseph Stiglitz at Yahoo Finance's annual investment conference on Tuesday. "But that will end on January 20th next year." Due to President-elect Trump's campaign promises to impose high tariffs on imported goods, cut taxes for businesses, and restrict immigration, there are concerns that Trump and his proposed policies may exacerbate inflation. These policies could also put pressure on the already swollen federal deficit, further complicating the Federal Reserve's future interest rate path. "The biggest risk is the imposition of high tariffs across the board, which could severely impact growth," Goldman Sachs chief economist Jan Hatzius wrote in a report to clients last Thursday. Jennifer McKeown, chief global economist at Capital Economics, also acknowledged in a report this week that there are "upside risks" to inflation, "partly stemming from the tariffs and immigration policies proposed by Trump." Investors have already taken note of this. Last Wednesday, the latest global fund manager survey from Bank of America highlighted an increase in investor expectations for a "no landing" scenario, where the economy continues to grow but inflationary pressures persist, leading the Federal Reserve to maintain higher interest rates for a longer period. After the election, investors' expectations for a no landing scenario in the U.S. economy have increased. Inflation Spiral Imposing tariffs has been one of Trump's most talked-about promises during his campaign. The president-elect has pledged to impose at least a 10% blanket tariff on all trading partners, including a 60% tariff on Chinese imports. Stiglitz said, "This will lead to inflation. Then you will start to think about an inflationary spiral. (That is to say,) when prices rise, workers will demand higher wages, and then you will start to consider what happens if others retaliate." Minneapolis Fed President Neel Kashkari categorized potential retaliatory actions as a "tit-for-tat" trade war, which would keep inflation elevated for a long time. "If inflation rises, Fed Chairman Powell will raise interest rates," Stiglitz said. "If you combine higher interest rates with retaliation from other countries, you will see a slowdown in the global economy. Then the worst-case scenario will occur: inflation and stagnation or slowing economic growth." Investors have already lowered their expectations for interest rate cuts. According to the Chicago Mercantile Exchange (CME) FedWatch tool, the market now expects the Federal Reserve to cut rates only three times from now until the end of next year. The market's expectations for the Federal Reserve's interest rate cuts are increasingly diminishing. The Trump Administration Will Bring Major Changes Despite high interest rates, the U.S. economy remains resilient. Retail sales in October exceeded expectations once again, GDP remains strong, the unemployment rate continues to hover around 4%, and inflation has significantly slowed. Moreover, it is still unclear which policies will become priorities after Trump takes office, or whether he will fully implement the campaign promises he made. The only certainty is change. The Republican Party will control both the White House and Congress in 2025. The U.S. economic team at Bank of America wrote in a client report last Friday, "A sweeping victory for the Republicans in the elections could lead to a complete policy shift." The team stated, "In some reasonable scenarios, growth rates could exceed 3%, or the economy could enter a recession. Our baseline forecast is optimistic, but our confidence is weak. As next year's policy agenda becomes clearer, we will flexibly adjust our forecasts as needed."