Investing.com – Donald Trump’s return to the White House could increase market instability in 2025, according to Piper Sandler, describing the economic environment as a “recipe for volatility.”
The investment bank draws comparisons to the early 1980s, suggesting that Trump’s return reflects the conditions Reagan faced when he took office, inheriting inflationary pressures and political dysfunction.
Piper Sandler points out that Trump will take office after years of stimulative fiscal and monetary policies, just as Reagan did. Federal spending is up, inflation remains steady, and bond markets are already starting to respond.
Bond vigilantes have begun pushing yields higher, speculating that the Fed’s recent interest rate cuts may have gone too far and too quickly.
Federal expenditures, which jumped 10.4% year-over-year in 2024, continue to fuel inflation, in contrast with tariffs that act as a one-time tax rather than an ongoing driver of price increases. The company asserts that tariffs may “push up relevant prices,” but the inflationary impact pales in comparison to unchecked government spending.
One of the main factors that could lead to market volatility in 2025 is the uncertainty surrounding fiscal policy under Trump. Federal spending patterns, the possibility of new tariffs, and questions about whether corporate taxes will remain low are all adding to market tension. Piper Sandler warns that while deregulation and tax cuts could boost productivity, the immediate concern is how aggressively Trump will impose tariffs, which could sap consumers’ purchasing power and impact markets.
Monetary policy is another flashpoint, with inflation showing signs of persisting even as the Federal Reserve attempts to ease monetary policy. Meanwhile, geopolitical risks – ranging from US-China tensions to conflicts in the Middle East and Europe – further complicate the outlook.
“The tensions are already showing in the data, with the Fed, Empire Bank and Phil manufacturing outlook indexes giving back some of their euphoric gains in the November election, and falling in December,” Piper strategists noted.
While the company expects GDP growth of 2% for 2025, it warns that this will not be a “smooth ride.”
“There are significant risks of volatility as Washington (hopefully) shifts to more sustainable fiscal policy (slower spending, less regulation, continued lower taxes) and monetary policy paths (fewer interest rate cuts), which puts us in a position to see stronger potential.” “. The note adds GDP growth.
However, in the near term, strategists believe the evolving political landscape and financial uncertainty under Trump’s leadership will contribute to a volatile year ahead.
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