UNITED STATES January 20 2017 8:22 AM
NEW YORK (Scrap Register): The nature and direction of U.S. President-elect Donald Trump’s economic policies are still not clear and may yet impact Federal Reserve policy and gold, said HSBC in a snippet.
“According to traditional macroeconomic theory, large tax cuts and infrastructure spending would likely – all things being equal – accelerate the pace of projected rate hikes,” the bank added.
This would help prevent the economy from overheating. But Trump may not deliver the fiscal stimulus that markets expect. Senior Republicans in Congress may not endorse substantial increases in infrastructure spending.
At the last Fed meeting, about half of the attendees incorporated a fiscal boost of some kind into their economic forecasts, while others suggested the Trump administration’s policies could harm growth longer term, HSBC pointed out.
“Uncertainty levels are still high and the Fed will be concerned about the possible imposition of trade barriers and currency disputes,” HSBC said. “So, while rate increases look possible and will weigh on gold, there should still be enough uncertainty to prevent too sharp a correction. The gold market may therefore take its next cue from any indication given by Trump and his aides as to the precise nature of his economic policies.”