The Trump Effect

An interest rate cut appears unlikely until early 2025 and even then, it may be pushed out further following the election of Donald Trump as US president last week. Analysts say Trump’s big spending commitments could keep inflation higher in the United States and that is bound to have flow-on effects in Australia.

RBA assistant governor Christopher Kent says the Trump victory is likely to lead to higher long-term interest rates in the US, higher inflation in the US, and possibly high growth for a time.

Trump has promised higher tariffs on imports, particularly China, which Ray White Economics chief economist, Nerida Conisbee, says could result in higher inflation in Australia. “Trump’s tendency towards lower taxes and pressure for lower interest rates could reignite global inflation,” she says. “This might force the Reserve Bank of Australia to raise interest rates.”

Kent says the demand by the US government for borrowing is substantial, which will affect global interest rates. “It’s also pushing the US dollar up and other currencies down.” At its most recent meeting, the RBA said it was grappling with “a high level of uncertainty about the outlook abroad”.

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