Less Taxes and Restrictions, More Stimulus and Inflation

By Isaac Cohen*

After falling before the election for nine consecutive days, unseen since 1980, the markets started climbing the following Monday before the voting. Following the Republican victory, investors have sold bonds and gold and returned to stocks, on the expectation of stronger economic growth and inflation.

Some of the elements of President-elect Donald Trump’s economic agenda are supporting this positive turn in the markets. The campaign promise of tax cuts and investment in infrastructure, amounting to a long expected fiscal stimulus, could push economic growth and inflation into higher levels. True both, the tax cuts and the public expenditure increase, demand congressional approval, but they are more feasible now because the Republican Party has the majority in the Senate and in the House of Representatives.

Other campaign promises, which can have more pernicious effects in the longer run, are not of immediate concern. Such is the case of the promised massive deportation of undocumented immigrants, which could destabilize the labor market, or the approval of custom barriers against imports from trading partners, which could unleash costly trade wars. Almost half of 57 US economists surveyed by The Wall Street Journal, after the election, said “a trade war was the biggest risk to the economy.”

Finally, even economists from the opposition recognize there is no imminent threat of a recession in the short run.

*International analyst and consultant. Commentator on economic and financial issues for CNN en Español TV and radio, UNIVISION, TELEMUNDO and other media. Former Director, UNECLAC.

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