Don’t count Trump stimulus before it is hatched

The main driving force behind the market rally since the Republican candidate Donald Trump secured a win in the US election has been the sheer expectations that Mr. Trump would unleash some form of massive stimulus, in the form of tax breaks and infrastructure spending that would finally take the economy reviving baton from the US Federal Reserve. Hence, the Fed would be more open to faster rate hikes as Mr. Trump’s plan is expected to trigger higher inflation in the United States. US benchmark stock index, S&P 500 is up 6.2 percent since the election and currently trading at a fresh record high of 2271.

However, there is a large risk of counting the stimulus before it has actually arrived and recent comments from the Republicans, who control both the Senate and the House of Representatives, pose considerable doubts over the stimulus, which may finally fail to arrive. Republican lawmakers have warned that there could be a major obstacle in enacting the President-elect Donald Trump’s stimulus agenda and that is the national debt. A nonpartisan debt report had already shown that Trump’s plan would push the debt to 105 percent of GDP, while the Republicans have passed a blueprint earlier this year that seeks to reduce $7 trillion in debt over the next 10 years from the current projection of 85 percent of GDP. The gap is simply too large. Senate Majority leader Mitch McConnel has called the current debt level dangerous and he said that he wants any tax overhaul to avoid adding to the deficit. House speaker Paul Ryan have said that he wants any tax changes to be deficit neutral.

Mr. Trump has insisted that his stimulus plans include participation from the private sector, which would put a cap on deficits and but actual; plans are yet to emerge. And unless that happens, doubts would prevail.