The financial consultancy, TS Lombard, makes bold predictions every year in December. This time his prediction for 2025 is stunning. According to his prediction, 2025 will be the year that will make the relationship between the US Federal Reserve and Donald Trump’s administration worse. Trump might even send a warning to use the army’s power. At the same time, Fed Chair Jerome Powell could give a response with the strength of bond power.
This future forecast reflects the aggressive nature of Donald Trump. His 2nd term will start in January 2025 officially. Before this time, he had already made big changes. For example, he announced a 25% tariff on Canadian exports. This decision resulted in the resignation of Canada’s finance minister. His departure further fueled the crisis.
Under Trump’s leadership, Europe’s security has also been at risk. He continuously pressures Ukraine to agree to a peace deal with Russia. This urging behavior by Trump could make the situation worse. One of the top priorities of Trump in US foreign policy is to change its economy. For this purpose, he eases regulations, especially in the technology sector. This action can increase the price of Bitcoin above $100,000. Trump’s announcement highlighted that he has plans and is ready to introduce big changes in the US economy and politics.
The bond market also shows concern about Trump’s potential return to power. In mid-September, many clues had already been confirmed to Trump’s victory. After this confirmation, the 10-year US Treasury bond yield has risen by almost one percentage point. This is not common, because by cutting interest rates the bond yields fall. But this time, the rise in yields raises various concerns. It highlighted that Trump’s policies must impact inflation rates and lead to higher tariffs and deficits.
Although the inflation rate increased before the election, the Federal Reserve started acting efficiently.
It reduced interest rates but warned that inflationary uncertainty would cause subsequent decreases to be more gradual. In their projections, some Fed officials are now taking Trump’s policies’ inflationary effects into account. Bond yields have risen the most in over a decade as a result, and economists now predict that the Fed may soon cease reducing interest rates. This indicates the bond market’s concern over Trump’s potential for higher inflation.
It is important to note that the global economy will be affected due to a conflict between the Federal Reserve and a future Trump administration.
According to JPMorgan, the Fed’s policy of keeping high interest rates has already made the US dollar more valuable and caused large capital flight from emerging market stocks and bonds. Of particular concern are Asian economies, which are extremely dependent on shifts in US monetary policy. Tighter financial conditions heighten the dangers for industries like real estate, which depend on low costs of borrowing.
One of the important questions is whether it is possible in the future that the Fed will understand the Trump economy strategy better than investors. Trump’s sudden change in US policies will create a challenging environment.
Tensions between the two sides might rise if the Fed sends off excessive clues about Trump’s immigration and trade proposals. Such disputes can erode investor trust and exacerbate the turbulence of the world’s financial markets. If Donald Trump is elected again, there could be an argument between him and the Federal Reserve. The Fed has alluded to the possibility that Trump’s protectionist and nationalist policies may have adverse consequences for the economy, particularly if inflation increases and bond markets experience strong selling pressure. A conflict between Trump and Fed Chair Jerome Powell is a major peril for 2025, claim TS Lombard analysts.
According to BCA Research, a lengthy, pricey trade war under Trump may divert attention from managing inflation, which is a much more urgent concern for the stability of the economy. Trump may use trade policy to advance his political goals, but his economic credibility may suffer if he is unable to control inflation. Inflation is now an important problem that could determine the success or failure of his second presidency, affecting both domestic and international monetary policy, contrary to his first term when it was not a big concern.
