Quick Take: Cabinet Picks Show Market and Populist Concerns

Summary

• We still know little about the incoming Donald Trump administration’s key policies, budget deficit, tariffs and immigration.
• Key economic nominees so far suggest a focus on both market performance and median household income growth.
• These need not conflict if growth remains high enough, but we need information to assess whether this is a realistic prospect.

Market Implications

• I still expect no cuts in 2025 against markets pricing about three.
• I still expect a December cut, in line with markets.

Meet The Press Interview Provides Few New Policy Pointers

There is no question that Trump 2.0 is better prepared than Trump 1.0. But prepared for what?

The Meet The Press interview contained limited new information. The most important information was that Trump will not try to oust Jerome Powell. Other than that, we still lack clarity on key issues. The tax cuts are in but from a macro perspective the more important issue is the budget balance, and we do not know where we stand. Tariffs are on but we do not know how much and where. Illegal migrant expulsions are on but we do not know to what extent.

Economic Nominees Point at Populism/Market Conflicts

Yet, the economic nominees provide clues (Table 1).

All the nominees have either worked in the Trump 1.0 administration or have a personal relationship with the President-elect. This time Trump intends to build a team that will implement his, rather than their, policy priorities.

That only about half have policy experience is consistent with Trump’s intention to be a disruptor.

For markets, Trump has appointed highly respected figures in the most sensitive positions: Treasury, Commerce, and the Securities and Exchange Commission. US Trade Representative has gone to Robert Lighthizer’s former chief of staff rather than to Lighthizer himself. This may have been because Lighthizer’s ideas, including capital control, could have upset markets. Trump’s statement during the Meet The Press interview that he does will not replace Powell further confirms he does not intend to disrupt financial markets.

Yet some appointments have been less favourable to markets. For instance, the Teamster-supported Lori Chavez DeRemer at the Department of Labor and Gail Slater as the head of the Department of Justice’s anti-trust division show a populist strand in Trump’ s policy plans. This matters because pro-labour and anti-trust policies could see a reversal in the trend of a rising profit income share and declining wage share. Academic studies argue this trend has been the main driver of the strong equity performance of the past 30 years (Chart 1).

Of course, with growth strong enough, there could be room for median real income gains and good equity market performance. However, we need more information on the administration’s policies to assess whether there is a chance of this happening.

Market Consequences

• I still expect no cuts in 2025 against markets pricing about three.
• I still expect a December cut, in line with markets.

(The commentary contained in the above article does not constitute an offer or a solicitation, or a recommendation to implement or liquidate an investment or to carry out any other transaction. It should not be used as a basis for any investment decision or other decision. Any investment decision should be based on appropriate professional advice specific to your needs.)