By Matt Peterson
Dear President-elect Trump,
Congratulations on your historic victory. You have won not only the electoral college, but also, for the first time, a majority of the popular vote. This should put an end to the ceaseless questioning about your democratic legitimacy. You are the president most Americans want.
Much has changed in the economy since you left office in 2021. You're inheriting an amazing recovery. But that can change quickly. Inflation may not be fully vanquished, and consumers are anxious about the future. The stock market welcomed your victory but will be quick to abandon you if the economic gains don't continue.
As you consider your strategy and personnel choices for your new administration, you may want to consider a few friendly pieces of advice from those who, like you, are deeply invested in the fate of the economy and the markets.
First, spend time with your economic advisers discussing how you can keep this boom going. You campaigned on leveling the global playing field for American workers, and as you do so you'll need to be careful not to reignite inflation. Yes, President Biden's overspending contributed to that problem, but tariffs will raise prices even if other nations don't respond. And they probably will.
Consumer sentiment is still in recession territory. The end of election season may help the national mood, but your choices as president will matter, too. Remember the national furor that erupted over family separation of migrants in your first presidency. Deportation raids that reach into homes and workplaces will create an ugly spectacle. Measures that abruptly restrict the labor force risk driving up inflation.
The Federal Reserve is finally bringing down interest rates, just as you wanted, but Chair Jerome Powell won't hesitate to reverse course should conditions change.
Second, in that vein, it would be wise to listen to the advisers who have counseled you to be wary of interfering with the Fed. On Thursday, Powell said unequivocally that he isn't quitting, and he believes it's illegal for you to fire him. It wouldn't be worth it, anyway. One silver lining of the inflation crisis is that inflation expectations have remained relatively low. Markets generally trust the Fed to do the right thing when a crisis hits, even if it makes mistakes along the way. If you weaken his authority, you risk spooking markets. You'll have a chance to replace him as Fed chair in May 2026. When you do, you should recall the advice of Kevin Hassett, the former chair of your Council of Economic Advisers, who has said you "should choose a neutral Fed leadership."
Third, keep the memory of the Covid-19 pandemic fresh in your mind as you think about who should staff public-health agencies. No one knows better than you how badly the economy can perform when Americans aren't fully vaccinated. In your victory speech, you said you will empower Robert F. Kennedy Jr. It's always sensible to get a broad range of advice, but Kennedy's repetition of the discredited link between vaccines and autism is troubling. Widespread childhood vaccination is a modern miracle underpinning our economy, and anything that would weaken it should give you pause.
A new pandemic could quickly erase our gains since Covid. You should be sensitive to the state of the public-health workforce, which is in the midst of a crisis of confidence. A Harvard study found that nearly half of state and local government public-health workers left their jobs in the five years through 2021; Covid has only accelerated the burnout. Your choices for key health agencies could boost -- or weigh on -- their morale.
Fourth, you deserve a loyal team, but don't let that keep you from getting the best advice. Good advisers dissent sometimes, especially on the economy. Others' agendas may not always align with yours, especially when they aren't sworn into the government and don't commit to avoid conflicts of interest.
Elon Musk has worked wonders at Tesla and SpaceX, and no doubt will have some good advice on streamlining the government. But his suggestion that he could cut $2 trillion in federal spending isn't credible; that would require brutal cuts to Social Security and Medicare, which you've said you want to protect. Musk is embroiled in disputes with the Securities and Exchange Commission and other agencies, while his business relies on government contracts. It will be important to filter his advice for any signs that he is putting self-interest above the nation's. As the nation's dealmaker-in-chief, you know well that few people are willing to spend $118 million without expecting something in return.
Finally, remember that while stock prices will change rapidly and often randomly, the bond market will have important messages for you. Already, there are signs that traders anticipating your presidency have sold off long-term government debt, prompting the 10-year Treasury yield to rise to 4.4% the day after the election. In practical terms, that means disappointment for Americans who were hoping for mortgage rates to fall as the Fed continues to cut rates, since mortgages follow the 10-year yield. How you manage the government budget will make a difference.
Your 2017 tax cuts helped the economy grow. This time you may have better luck with a different plan. You were the rare president who slowed the growth of the regulatory state. That could help again this time.
You have the unlucky timing of taking over as the federal debt is set to exceed 106% of gross domestic product, the record set after World War II, according to the Congressional Budget Office. The budget deficit is at 7% of GDP. If you follow through with all your campaign promises, it could rise rather than fall.
Global investors' appetite for U.S. debt is already weakening, though not yet worryingly so. If we continue issuing vast new amounts for years on end, investors could demand more reward to hold our debt. A rising term premium would threaten a stock market that has already seen a long run-up in valuations.
The stock market isn't the economy, of course, but surely you'd rather see it in the green than the red.
Good luck, Mr. President-elect. We all have a stake in your success.
Write to Matt Peterson at matt.peterson@dowjones.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
November 10, 2024 11:01 ET (16:01 GMT)
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