Wall Street's "Smart Money" New Topic: Trumpflation

As the 2024 US presidential election approaches, investors are becoming increasingly wary of "Trumpflation".

According to media reports on Thursday, Wall Street institutions and analysts are starting to pay attention to the inflation risks that the US election may bring. Although Trump's average inflation rate during his term was only 1.9%, much lower than Biden's 5.4%, some investors believe that if Trump wins the election in 2024, inflation will be more severe than during Biden's re-election.

In a report on June 18, Goldman Sachs pointed out that if investors are concerned about the inflationary risks that Trump's policy proposals may bring, they should consider buying gold as a hedge. Goldman Sachs analysts wrote:

Gold is valuable for inflation hedging, can address geopolitical shocks, including tariffs, risks from the Federal Reserve, and debt concerns.

Although Goldman Sachs did not explicitly attribute these risks to Trump's agenda, these three potential shocks clearly point to the economic policies that Trump is brewing. Trump's economic policy proposals include:

• Tariff policy: Imposing a 10% tariff on all imported goods. According to the Peterson Institute for International Economics, this would increase annual spending for the average household by $1,700.
• Intervention in the Federal Reserve: Trump believes that the White House should have more control over the Federal Reserve, which could raise concerns in financial markets.
• Extension of tax cuts: Trump hopes to extend a series of tax cuts implemented in 2017, which were originally set to expire at the end of 2025, meaning that US debt would increase by $4-5 trillion.
• Immigration policy: Trump may tighten immigration policies, which could reduce labor supply, exacerbate labor shortages in certain industries, raise wages, and increase prices.

Analyses from Moody's Analytics and the Oxford Economics Research Institute have also reached similar conclusions. The Oxford Economics Research Institute found that new tariffs and Trump's other policies could raise the inflation rate by a full percentage point.

It is worth noting that the current economic environment is significantly different from Trump's first term. The COVID-19 pandemic, geopolitical conflicts have already changed the economic landscape, leaving policymakers with less room for error. Factors such as supply chain restructuring, labor shortages, and tensions in the energy market could all exacerbate inflationary pressures