As the US presidential election approaches, the market's attention is once again focused on the showdown between Trump and Harris. As a seasoned market trader and financial editor, this article will delve into the potential impact of Trump's re-election on the US economy, Federal Reserve policies, the US dollar, and gold.

At the time of writing this article, the market is experiencing severe fluctuations. The US dollar has shown some instability in recent trading, while gold, as a traditional safe haven asset, its price fluctuations also reflect investors' concerns about future uncertainty. The Federal Reserve is facing a dual challenge of controlling inflation and stimulating economic growth in the current economic environment.

Trump's economic policy tendencies, especially his trade protectionism policies, may have an impact on global trade and supply chains. Trump's tariff plans and deportation policies for undocumented workers are believed to reignite price pressures. The model from Oxford Economics predicts that under Trump's second administration, the inflation indicators tracked by the Federal Reserve will be 0.3 to 0.6 percentage points higher than expected. This forecast is in stark contrast to current market expectations for inflation, with the market generally expecting the Federal Reserve to cut interest rates in September in response to an economic slowdown.

Analysts from well-known institutions hold different views on the economic outlook after Trump's election. Mark Sobel pointed out that Trump's economic plan is essentially reigniting inflation, which will cause inflation and interest rates to be higher than they should have been. Diane Swonk believes that Trump's increase in tariffs and restrictions on foreign workers will lead to a resurgence of inflation, forcing the Federal Reserve to maintain current interest rates for a longer period of time.

The impact on Federal Reserve policies

If Trump is elected, it may pose a challenge to the independence of the Federal Reserve. Trump has publicly criticized the Federal Reserve's monetary policy and hinted at the possibility of withdrawing from international organizations. This may affect the Federal Reserve's policy decisions, especially in controlling inflation and adjusting interest rates. In addition, Trump may use his nomination power for the Federal Reserve Chairman and Board members to indirectly influence the Fed's decisions.

Evercore ISI analysts believe that if Trump wins, the Federal Reserve's response to the new outlook will be slower than the market, and it may withdraw some of its current expectations for interest rate cuts to be implemented next year, or even expect a rate hike by the end of 2025. This viewpoint differs significantly from the current market expectations of the Federal Reserve's policies and requires close attention from investors.

The impact on financial markets

Trump's economic policies, especially his fiscal stimulus measures of tax cuts and increased spending, may increase the US fiscal deficit and affect the global economy through changes in interest rates, thereby impacting the trend of the US dollar. Meanwhile, Trump's support for the traditional fossil fuel industry may affect the global energy landscape, thereby impacting the US dollar. On the other hand, market uncertainty may increase the attractiveness of gold as a safe haven asset.

Trump's unpredictability and radical policy proposals may lead to significant fluctuations in stock, currency, and commodity markets. Wall Street strategists are urging clients to prepare for sticky inflation and rising long-term bond yields. In addition, Trump's victory may lead policy makers to withdraw their current expectations of some interest rate cuts to be implemented next year, and may even shift their focus to expecting a rate hike by the end of 2025.

How the Federal Reserve will adjust its policies in the face of the possibility of Trump's election remains an unknown variable. Former Boston Fed President Rosengren believes that the Fed needs to start considering the possibility of Trump winning the election, even when considering recent interest rate cuts. However, Richmond Fed President Barkin warned against formulating current policies based on expectations of future government actions.

In summary, if Trump is re elected, his policies may have a profound impact on the US economy, Federal Reserve policies, the US dollar, and gold. Market traders need to closely monitor election dynamics and the Federal Reserve's response to these changes.