In a significant shift for the U.S. economy, Federal Reserve Chair Jerome Powell announced a 25 basis point cut in the federal funds rate during the November 2024 policy meeting, bringing it down to a target range of 4.50% to 4.75%. This decision follows a larger-than-expected 50 basis point cut in September, reflecting the Fed’s gradual pivot in response to a cooling labour market and moderating core inflation rates, alongside declining crude oil prices.
Meanwhile, the political landscape has also shifted dramatically with the election of Donald Trump as the 47th president of the United States on November 6, 2024. Trump’s return to office was marked by a decisive victory over Democratic candidate Kamala Harris, leading to an immediate 6% rally in the Dollar Index on election day. His promises of blanket tariffs on imports, stricter immigration controls, and tax cuts could exacerbate the already ballooning U.S. fiscal deficit and introduce inflationary pressures that may compel the Fed to reconsider its recent monetary policy stance.
This divergence between fiscal and monetary policies raises concerns about persistently high interest rates that could exceed current market expectations. The recent surge in the U.S. 10-year Treasury yield by 70 basis points, despite the Fed’s rate cut, indicates that structural factors may be influencing long-term rates beyond just Fed adjustments.
Trump’s presidency is expected to bring renewed unpredictability to global economic stability, particularly regarding his approach to foreign policy in conflict zones like the Middle East and Ukraine. His hawkish stance on China, encapsulated by his “All but China” strategy, may present opportunities for countries like India to enhance local manufacturing capabilities while navigating potential economic fallout from increased tariffs.
For emerging markets, this political shift heralds heightened uncertainty and potential capital outflows. India experienced record foreign capital outflows of ₹95,000 crore in October 2024, with its currency depreciating against the dollar. However, a peaceful resolution to ongoing conflicts could stabilise global commodity prices, benefiting large oil-importing nations like India.
India’s relatively stable economy and strong political leadership position it well to weather these challenges. Enhanced cooperation with the U.S. under Trump could bolster India’s strategic positioning in defence and technology sectors, supporting its ambition of becoming a $10 trillion economy by the next decade.
As Trump embarks on his second term, industries across various sectors will need to adapt swiftly to his administration’s policies. The implications for trade, regulatory frameworks, and international relations will be profound, demanding strategic responses from businesses and policymakers alike as they navigate this new landscape of economic volatility and opportunity.
