In this week’s market update I am going to focus on the path of interest rates, as over this past week midst the US election we got a swathe of Central Bank rate decisions. The RBA held the cash rate on Tuesday, but the Fed, the Bank of England, Sweden’s Riksbank and the Hong Kong Monetary Authority all cut.
While Donald Trump won’t return to the White House for another 10 weeks, he’s already casting a shadow over central banks and with Trump 2.0 expected to boost growth and risk returning inflation, and actually there was (reasonable) speculation that the Fed might not cut rates after all, or at least hint heavily that it would pause at next month’s meeting. Certainly, some economists now expect fewer rate cuts from the Fed next year as trade tariffs may boost US inflation. That could reshape the easing path for central banks around the world, and add currency pressure on emerging markets.
Australia’s economic output could fall between 0.8% and 1.5%, or $20 billion to $37 billion if Trump imposed a suite of his economic policies including slashing America’s 21 per cent corporate tax rate to 15% KPMG estimated.
So all up, the level of uncertainly ahead has been amplified by the Trump victory, and the consequences will spill over into other markets. But we can expect higher interest rates in the months ahead, which is not good for those holding on by the skin of their teeth. This is going to get messy.
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