Trumponomics is a mix of demand-side and supply-side economics. The former tends to be inflationary, while the latter tends to be disinflationary. That’s in theory. In practice, we will all find out together what the net result of mixing things up like this will do to inflation. On the demand side, President-elect Trump proposes to spend $1 trillion on infrastructure over the next 10 years. On the supply side, he proposes to slash the corporate tax rate. He also intends to reduce income tax rates on personal incomes, which can have both inflationary demand-side and disinflationary supply-side effects.
I think that on balance, the disinflationary supply-side effects will offset some, but not all, of the inflationary demand-side effects of Trumponomics. That certainly should greatly reduce the risk and fears of deflation. If so, then the 35-year bull market in bonds might have ended on July 8 of this year when the 10-year yield bottomed at a record low of 1.37%. It is already back up to 2.23%.
Much of that backup was attributable to the perception that no matter who won the presidency, there would be more fiscal stimulus. Now that Trump has won, that’s become a virtual certainty. After all, Don the Builder’s specialty is building things.
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