Now that US President Donald Trump has taken office, markets and the economy have a new and very different driving force. Forget about the US Federal Reserve. The US’ outlook would depend much more on how, and to what extent, the president puts his plans on everything from tariffs to deportations into action.
What to expect? That is a very difficult question. Nevertheless, one can make an educated guess. Here is mine.
Trump would take tariffs much higher than before — to at least 10 percent of aggregate imports, compared with 3 percent in his first term. He is genuinely a fan, seeing them as a great negotiating tool and income generator. His government needs the revenue, given projected budget deficits of about 6 percent of GDP over the next decade (and that is assuming no extension of the 2017 tax cuts). As a result, inflation would probably run 25 to 50 basis points higher over the next year, as importers pass on costs and protected domestic producers raise prices. This price shock would come at a time when inflation is already above the Fed’s 2 percent target. It would depress consumer spending, especially for lower-income households that have no savings buffer and spend more of their income on imported goods.
Trump would follow through on deportations, but I expect less rather than more. Ejecting millions of people from the US is logistically difficult. A committed effort would take years, not months, and the resulting labor shortages would be too economically damaging. Still, even a smaller number — say, focused on convicted criminals — would exacerbate a shortage of workers that is limiting growth. Together with former US president Joe Biden’s crackdown on border crossings, the retirement of baby boomers and the already elevated participation rate among prime-age workers, modest deportations could hold the annual increase in the labor supply to less than 0.5 percent. This implies a maximum real GDP growth rate of just 1.5 percent to 2.5 percent.
Trump and Congress would extend the 2017 tax cuts, but would not enact other costly campaign promises, such as reducing taxation of social security benefits and tips. Given the dire budget outlook, some Republicans would balk at added tax cuts without offsetting spending cuts, which would be hard to agree on. Consensus is lacking: House and Senate Republicans have differing appetites for fiscal probity, while Democrats are likely united against bigger tax cuts (with the exception of increasing the state-and-local-tax deduction).
For this year, all this suggests a difficult economic trajectory. Expect higher inflation, elevated interest rates, slower growth and more volatility as markets and the Fed struggle to adjust to Trump’s pronouncements and actions. In short, prepare for turbulence ahead.
Bill Dudley, a Bloomberg Opinion columnist, served as president of the Federal Reserve Bank of New York from 2009 to 2018. He is the chair of the Bretton Woods Committee, and has been a nonexecutive director at Swiss bank UBS since 2019. This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
In the US’ National Security Strategy (NSS) report released last month, US President Donald Trump offered his interpretation of the Monroe Doctrine. The “Trump Corollary,” presented on page 15, is a distinctly aggressive rebranding of the more than 200-year-old foreign policy position. Beyond reasserting the sovereignty of the western hemisphere against foreign intervention, the document centers on energy and strategic assets, and attempts to redraw the map of the geopolitical landscape more broadly. It is clear that Trump no longer sees the western hemisphere as a peaceful backyard, but rather as the frontier of a new Cold War. In particular,
When it became clear that the world was entering a new era with a radical change in the US’ global stance in US President Donald Trump’s second term, many in Taiwan were concerned about what this meant for the nation’s defense against China. Instability and disruption are dangerous. Chaos introduces unknowns. There was a sense that the Chinese Nationalist Party (KMT) might have a point with its tendency not to trust the US. The world order is certainly changing, but concerns about the implications for Taiwan of this disruption left many blind to how the same forces might also weaken
As the Chinese People’s Liberation Army (PLA) races toward its 2027 modernization goals, most analysts fixate on ship counts, missile ranges and artificial intelligence. Those metrics matter — but they obscure a deeper vulnerability. The true future of the PLA, and by extension Taiwan’s security, might hinge less on hardware than on whether the Chinese Communist Party (CCP) can preserve ideological loyalty inside its own armed forces. Iran’s 1979 revolution demonstrated how even a technologically advanced military can collapse when the social environment surrounding it shifts. That lesson has renewed relevance as fresh unrest shakes Iran today — and it should
As the new year dawns, Taiwan faces a range of external uncertainties that could impact the safety and prosperity of its people and reverberate in its politics. Here are a few key questions that could spill over into Taiwan in the year ahead. WILL THE AI BUBBLE POP? The global AI boom supported Taiwan’s significant economic expansion in 2025. Taiwan’s economy grew over 7 percent and set records for exports, imports, and trade surplus. There is a brewing debate among investors about whether the AI boom will carry forward into 2026. Skeptics warn that AI-led global equity markets are overvalued and overleveraged
RSS