(MENAFN- Asia Times)
Each new year, global investors face a wildcard that they must game out in real time. In 2025, punters confront three as the Donald Trump 2.0 presidency hits the ground running.
They are: the trajectory of the US dollar; Xi Jinping's plans for the yuan; and how trade tensions might play out in the end.
Making matters worse, each relies in part on three additional imponderables: Trump's penchant for policy chaos ; how China might respond; and the ways in which Washington might retaliate against Beijing's retaliation - and vice versa.
“As we step into 2025, the global Economy stands at a precarious crossroads, heavily shaped by an overarching theme: uncertainty,” says Marcello Estevao, chief economist at the Institute of International Finance.
Estevao adds that“from political decisions to policy implementations, the lack of clarity emanates largely from the new Trump administration. This uncertainty extends far beyond the United States, permeating global markets, trade relations and regulatory frameworks.”
The first wildcard took on new urgency this week when Federal Reserve Chairman Jerome Powell's board effectively defied the president. Trump told the audience in Davos earlier this month that he would“demand that interest rates drop immediately.”
In the weeks before the Fed's January 29 decision to stand pat, Trump let it be known that lower rates are a key second-term priority. Team Powell ignored the jawboning, sparking an immediate retort. Trump even accused Powell's team of letting diversity, equity and inclusion (DEI) considerations get in the way.
As Trump wrote on social media:“If the Fed had spent less time on DEI, gender ideology, 'green' energy and fake climate change, inflation would never have been a problem.”
Trump complained that“because Jay Powell and the Fed failed to stop the problem they created with inflation, I will do it by unleashing American energy production, slashing regulation, rebalancing international trade and reigniting American manufacturing.”
Traders know better than to dismiss Trump's rantings. In his first term from 2017 to 2021, Trump went after his hand-picked Fed chairman early and often. It worked; Trump cajoled Powell into reversing the Fed's tightening cycle and cutting rates in 2019.
Since then, Trump has made a point of slamming the Fed at every opportunity. On the campaign trail last October, Trump mocked Powell's Fed.“I think it's the greatest job in government,” Trump told Bloomberg.“You show up to the office once a month and you say, 'let's say flip a coin' and everybody talks about you like you're a god.”
Trump also argues that presidents should have a direct say in monetary decisions.“The Federal Reserve is a very interesting thing and it's sort of gotten it wrong a lot,” Trump told an audience last year.
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