Last night, the nation sat on pins and needles as the results of the election slowly trickled in. Half the nation cheered in victory, while the other half looked on in terror, as Donald Trump pulled further and further ahead of Hillary Clinton.
Regardless of how you voted or your opinions on the outcome, this is what our nation has in store for us: at least four years of the “Washington outsider.” So what does this mean, for our country, the economy, and the world? It’s impossible to know for sure, but based on his proposed policies, there’s at least some speculation we can do.
Trump and the Economy
In the stock market, the immediate reaction to Trump’s victory was one of panic. Dow Futures fell 750 points last night, and some experts believe it could end up dropping by 1,000 or more. But don’t take that as a sign of things to come. The stock market often becomes erratic when a major change arises whose implications are uncertain. Today, prices are already on their way up again.
Instead, let’s gauge his upcoming administration by his proposed policies. In his victory speech last night, Trump promised to double economic growth during his presidency. He further elaborated that he would do so with increased spending on infrastructure. Hardly surprising, as a large part of his legacy is founded on the creation of great buildings, from casinos to skyscrapers and more.
By putting a focus on improving our country’s infrastructure, Trump could create a lot of jobs, improve things for businesses, and really help the economy. However, there’s also the question of how to pay for it.
Trump and Spending
The importance of infrastructure spending wasn’t lost on Hillary Clinton. During her campaign, she proposed spending $275 billion on it. Trump has indicated that he would spend at least double that amount on it, and possibly up to a trillion dollars. Meanwhile, he plans on cutting corporate taxes significantly and offering tax credits to private construction companies.
The thinking is that these tax breaks for corporations will encourage them to put the money they save back into our economy and infrastructure, thus improving things for everyone. The economy might get a short boost from that, but many fear that in the long term it’s unsustainable.
While Trump himself has often decried the enormous deficit our country’s budget already has, his proposed spending could potentially put us into even more debt going forward. Some estimates even see it doubling. So the improvement to our economy could very well be short-lived.
Trump and the Fed
Just a few days before the election, the Federal Reserve Board had its November meeting, where once again they voted against raising the interest rate. Everyone’s been anticipating a rate hike in the near future, though, and the likelihood of it going up in December has been thought to be pretty high.
Now however, things are a bit less certain. Before the election, markets were projecting an 80% chance of the interest rate going up. Immediately following Trump’s victory, that likelihood dropped to 50%, and currently stands at 70%.
The GDP is on the rise at the moment, and the Fed has increasingly been of the opinion that the economy is finally strong enough to withstand another rate hike. However, if Trump really does plan on cutting taxes, increasing spending, and plunging the country further into debt, then that strength might fail in the near future. Taking that into consideration, they may decide to rethink their position. Additionally, if the Dow fails to recover from the hit it took on Election Night, or drops further in the coming weeks, it could indicate we’re not in a position to endure higher interest rates quite yet.
Of course, the most important thing to remember is that we don’t for sure know what’s going to happen. Trump doesn’t take office until January, and the current drop in the stock market is a reaction to the surprise and uncertainty of the situation, not any concrete effects of Trump’s as-yet-to-be-enacted policies. Neither we nor the Fed actually knows for sure how the economy will be impacted over the next four years. For now, all we can do is wait, see and mitigate our vulnerability to market uncertainty.