If you are a free market supporter, it is reasonable to be optimistic. We are likely to see deregulation, as we did during Trump's first term and in some of his recent executive orders, such as opening up oil drilling and freezing federal hiring. However, as an investor, it is important to consider the president's constraints on the U.S. system of government. There are three key factors that could significantly impact the economy and over which Trump has little or no control. However, there are important factors to consider. In the U.S. system of government, the president has limitations. Here are three aspects that could significantly impact the economy and over which Trump has little or no control.
The U.S. national debt is rising rapidly. Although Trump has proposed cutting government spending, he faces major challenges due to partisan politics and political incentives. Defense spending is difficult to reduce and programs such as Social Security and Medicare are politically risky to reform. Historically, each president has left a larger debt, and Trump will have difficulty changing this trend.
On monetary policy, Trump has called for lower interest rates, but he has no authority over the Federal Reserve. While the economy needs lower rates to function, the Fed must keep them high to control inflation. Trump's demands could make Jerome Powell even more resistant. Trump has no control over monetary policy, and this could lead to more inflation.
Finally, Trump cannot reverse the effects of nearly two decades of monetary malfeasance. Although he has called for lower interest rates, he has no authority over the Fed. The economy needs lower rates, but the Fed must keep them high to control inflation. Trump's demands could make Jerome Powell even more resistant.
Mike Maharrey, Money Metals