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Financial markets have swung wildly after Donald Trump was elected the new US president. These wild swings are a sign that few know what economic policies he will follow after he takes charge in January.
One emerging view is that Trump would prefer higher interest rates combined with a larger fiscal deficit. In other words, a tighter monetary policy will be accompanied by a looser fiscal policy.
Just what this switch will mean for economic growth, inflation, exchange rates and asset prices is a puzzle—especially if you assume that cranking these two policy levers will have an impact on the real economy with different lags. It is also not clear whether the US Federal Reserve will play ball.
Add to that the fears that Trump may push a protectionist agenda in the hope that it will protect US jobs.
So it is not at all surprising that investors across the world are confused after the election of the maverick at the head of the largest economy in the world.