Economists and investors alike are looking at the current state of the U.S. economy as one with high growth and anticipated inflation heading into the November midterm elections. President Donald Trump’s deregulation efforts, tax cutting initiatives, and stimulus spending associated with his “One Big Beautiful Bill” have allowed the U.S. economy and stock market to grow, seeing a 4.4% increase in GDP in the third quarter of 2025 and an forecasted 5.4% increase the fourth quarter of 2025. This increase is expected to coincide with a heated up job market, which has been a known weak spot in Trump’s economy.
While growth is expected and has happened, there is also the potential for an inflationary cycle within the U.S. economy. President Trump has been very adamant that the Fed cut interest rates, which would most certainly cause an increase in inflation. With President Trump set to replace Fed Chairman Jerome Powell in 2026, investors have braced themselves for the inflation that would coincide with cutting interest rates, especially since the new Fed Chairman would most likely support the President’s viewpoint on interest rates. The issue of whether or not to cut interest rates remains contentious, but investors are of the opinion that the inevitable cutting of them would lead to an increase in the inflation rate.
https://www.ft.com/content/8cbb2664-7795-4286-a795-99181df151fc
This is quite interesting of the president since he seems to be on Stephen Miran side of how we should tackle the inflation rate. Miran thinks the FED is being too cautious for how they are combating inflation. Miran thinks we should cut rates by about 150 points (1.5%) immediately since inflation is near. But others believe playing the long game and dropping rates slowly throughout 2026 is the way to go. I wonder what you think. Do you think we should cut rates like Miran or play the long game throughout 2026?
ReplyDeleteIt has been interesting to see the effect that President Trump has had on the American economy. I am curious to see how the new Fed Chair will have an effect on investors and market as a whole.
ReplyDeleteIt's also interesting to think about whether this will sway the elections, since early on, people believed Trump's economy would be punishing for republicans. Since the economy is hot right now, this may not be true.
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