Ludovic Subran, an economist, warns that inflation could rise as former President Donald Trump prepares for a possible return to office in the month of November.
Subran, chief economist at Allianz predicts that Trump’s reelection will have significant repercussions on the US economy. This could exacerbate inflationary pressures, which are already a worry for financial markets and policymakers.
The Personal Consumption Expenditures (PCE) Price Index, a key measure for inflation, increased in June by 0.1% per month and 2.5% per year, matching Dow Jones estimates.
Jerome Powell, the Federal Reserve Chair, expressed his satisfaction at this progress in inflation during a recent forum held in Portugal.
Subran, however, sees a troubling situation if Trump returns to White House in 2024.
Subran says that Trump’s policies may have a “triple-whammy effect” on inflation.
The economist predicts that Trump will implement aggressive measures, such as deporting seven million people, imposing increased tariffs, and possibly reactivating Plaza Accord which could devalue US dollar by 30%.
Subran claims that these actions could increase inflation by one to two percentages points in 2025.
Fed may not reduce interest rates in 2024
Subran predicts that the US Federal Reserve is going to cut interest rates by 50% by the end 2024.
He believes, however, that the Fed will struggle to lower rates in 2025 if there is a resurgence of inflation due to Trump’s policy. The central bank’s credibility could be undermined if its ability to control inflation is compromised.
Subran says that the Federal Reserve will hold a policy-setting meeting this week. However, he does not expect any rate cuts until September.
The economists’ concerns highlight the challenges the Fed could face in maintaining stability if Trump’s government reintroduces inflationary pressures.
The reelection of Trump is bad for Europe
Ludovic Subran said on “Squawk box” that Donald Trump could be positive for the United States over the short-term, but warned that in the long-term he will turn negative “if there is a bust”.
He also expects that a Trump administration will be negative for Europe from “day one”. It’s because Trump is “America First”, which means that others, including Europe will come second.
The Republican will likely reenact Sino-American rivalry, and “talk about solving the conflict in Ukraine in 24 hour” – which could all together disrupt the markets in Europe.
Note that Donald Trump already expressed confidence that Kamala would be easier to defeat in the 2024 U.S. election than Joe Biden, who ended his reelection campaign in July.
This post Donald Trump’s re-election could spike the inflation, warns Allianz Chief Economist Subran appeared on ICD
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