传奇投资者Paul Tudor Jones此前在接受媒体采访时警告，Economists are more concerned about Trump than Harris. His proposals on immigration, taxation, and trade may lead to higher deficits, inflation, or both. Once price pressures spread, the Fed will find it difficult to stand idly by. At that time, the Fed may change course and resume raising interest rates.
The Federal Reserve's continuous anti-inflation efforts over the past two years are very likely to be in vain due to the outcome of the US election.
With supply chain issues resolved and the Federal Reserve continuing to raise interest rates, US inflation is steadily decreasing. The year-on-year increase in CPI in September has dropped to 2.4%, close to pre-pandemic levels. However, whether inflation will continue to ease next year largely depends on the outcome of the November election. If inflation rises again, the Federal Reserve will be forced to abandon its current rate-cutting strategy and resume raising rates.
Immigration, tariffs, and deficits are all major problems.
Legendary investor Paul Tudor Jones previously warned in a media interview that regardless of whether Trump or Harris wins the presidential election, US inflation will rise. Both presidential candidates have made 'crazy' promises of tax cuts and increased fiscal spending, turning a blind eye to America's deficit problem.
Renowned financial journalist Nick Timiraos, also known as the 'New Federal Reserve News Agency', stated in an article on October 28 that economists are generally more concerned about Trump than Harris. Market fears Trump's trade and immigration policies the most, and in these areas, the president has greater freedom of action without needing congressional approval.
In terms of immigration, a study by the Peterson Institute estimates that deporting illegal immigrants (Trump's core proposition) will significantly reduce economic output while pushing inflation higher. Due to the reduction in labor force, companies either have to increase wages and prices or accept a decrease in profit margins.
Moreover, the expulsion of immigrants may fail to achieve Trump's policy goal of shifting domestic jobs from foreign workers to Americans.
A study at the University of Denver in Colorado shows that for every 1 million illegal immigrants expelled, 88,000 American workers lose their jobs. This is mainly because immigrant workers in certain industries such as food processing, agriculture, construction, and hotels may not necessarily be competing with American workers.
If existing workers are expelled, these companies may reduce production instead of hiring more local workers. The decrease in sales, in turn, results in fewer high-paying jobs for local workers, which are the very jobs that serve these industries.
There is a consensus in the market on the consequences of Trump's tariff policy. Business leaders and economists unanimously believe that American consumers will bear the cost of tariffs.
USA auto parts chain brand$AutoZone (AZO.US)$The CEO Philip Daniele clearly stated in last month's earnings conference call, "will pass on these tariff costs to consumers."
The deficit issue is also a focus of the market's attention. In terms of taxation, Trump currently hopes to extend certain provisions of the 2017 tax cut law beyond 2025, while further reducing the corporate tax rate. He also proposes to eliminate taxes on workers' tips, overtime pay, and retiree social security benefits.
This makes balancing fiscal expenditures a pressing issue. Paul Tudor Jones warns that if the next president does not adjust policies to reduce the deficit in response to the increasing debt-to-GDP ratio in the USA:
The solution to break out of this situation is inflation.
The Federal Reserve may fear pausing interest rate cuts and resuming interest rate hikes.
Whoever is elected, the situation will be very tricky for the Federal Reserve. Timiraos warns that any policy that rekindles inflation could slow down or even halt the Fed's rate cut plans.
Timiraos believes that for the Federal Reserve, tariffs are similar to taxes and will weaken demand. During Trump's previous term, tariff hikes disrupted the stock market and threatened corporate investments. When the negative impact of tariffs on economic growth outweighed the inflation impact, the Fed eventually cut interest rates.
But this time may be different. If tariffs trigger a rekindling of inflation, the Federal Reserve may find it hard to stand idly by. Historically, the Fed in 2021 mistakenly judged the temporary price spike as transitory and missed the opportunity to combat inflation.
Timiraos warns that once price pressures spread, the Fed will significantly raise rates to ensure businesses and workers do not anticipate high prices becoming the new norm. If a second wave of inflation occurs shortly after the initial inflation, adjustments will be even more challenging.
Many paths lead to inflation? Bullish on gold, bearish on US bonds
Paul Tudor Jones believes that if his forecast for the US inflation outlook comes true, the US bond market will inevitably face impact, gold.$Bitcoin (BTC.CC)$Then it may become a big winner:
All roads lead to inflation. Bullish on gold, bullish on bitcoin, I believe csi commodity equity index is severely undervalued, so I am also bullish on csi commodity equity index. I think many young people are hedging against inflation through nasdaq, which is performing well.
Jones warns that the next president must address the massive deficit issue, or else they will face protests from the bonds market. Last year, bond investors made a big move by refusing to buy US bonds, causing the 10-year Treasury yield to hit 5% in October last year:
If the next president does not adjust policies to address the rising ratio of debt to GDP in the usa, the solution to escape this situation is inflation.
Editor/Rocky
