Source: Jin10 Data

Jan Hatzius, Chief Economist of Goldman Sachs, said that US former President Trump's tariff plan may lead to an additional five rate hikes by the Federal Reserve.

At the European Central Bank annual meeting held in Sintra, Portugal, Hatzius outlined the impact of Trump's proposal to impose a 10% tariff on all imported goods. He then assumed that all other countries would raise tariffs in retaliation, and subsequent trade disputes would raise policy uncertainty to the peak of Trump's first presidential term.

Hatzius said this would raise the US inflation rate by 1.1 percentage points, while European inflation would only rise moderately by 0.1 percentage points.

However, the impact on economic activity will be reversed. Hatzius said that GDP in the euro area will be affected by one percentage point, while the US will only be affected by 0.5 percentage point. Hatzius said, "This asymmetric reflection of the negative impact of trade policy uncertainty is greater in the euro area than in the US."

He then used the Taylor rule standard and used these numbers to derive the impact on monetary policy. He pointed out that in Europe, due to the drag on economic growth, interest rates will actually fall by 40 basis points. However, in the United States, due to huge inflationary effects, interest rates are likely to rise by 130 basis points.

Since last Friday's presidential debate, Trump has extended his lead over Biden in the polls. In CNN's poll, he is leading by 6 percentage points.

Since last week's TV debate, Wall Street has begun to adjust for Trump's possible return to the White House, and traders in the $27 trillion US bond market are betting that long-term bond yields will rise. The yield on 10-year US Treasuries has risen by 15 basis points. This is a bet on a steep trade that has been gaining momentum since the first presidential debate.

Editor / jayden