Goldman Sachs: "Fed Will Raise Rates 5 Times If Trump Is in Power"

10% Additional Tariffs on Imports Imposed
US GDP Growth Rate Drops by 0.5%P
Concerns Over Worsening Inflation

Following the first TV debate of the U.S. presidential candidates, the probability of former President Donald Trump's re-election is increasing, and an analysis has emerged suggesting that under a 'Trump 2.0' scenario, the Federal Reserve (Fed) would raise the benchmark interest rate five times. This is due to concerns that if Trump follows through on his pledge to impose additional tariffs, the ensuing trade war could exacerbate inflation.

On the 3rd (local time), according to major foreign media, Jan Hatzius, Chief Strategist at global investment bank Goldman Sachs, stated at the European Central Bank (ECB) annual policy conference held recently in Sintra, Portugal, that "if former President Trump imposes an additional 10% tariff on all imports as announced, the U.S. inflation rate would increase by 1.1 percentage points."

He added, "Due to the significant inflationary impact of Trump's tariff policy, the Fed would need to raise the benchmark interest rate by 130 basis points (1bp = 0.01 percentage points)." According to this scenario, the Fed would have to raise rates a total of five times.

Generally, tariffs are considered a factor that hinders economic growth because they limit global competition and cause a decrease in exports. Strategist Hatzius predicted, "Trump's tariff policy could reduce the U.S. Gross Domestic Product (GDP) growth rate by 0.5 percentage points."

Trump's tariff policy is expected to hit Europe even harder. Hatzius analyzed, "The Eurozone (countries using the euro) GDP growth rate would decrease by 1.0 percentage point." He also forecasted, "In Europe, economic growth will decline, and the benchmark interest rate will fall by 40 basis points."

Foreign media explained that this financial and economic scenario under Trump 2.0 emerged after former President Trump’s decisive victory over President Biden in the presidential debate on the 27th of last month. The debate reignited concerns about President Biden’s cognitive abilities, leading to calls for his resignation within the Democratic Party, and the bond market reacted with a sharp rise in government bond yields due to fears of 'Trump-style inflation.'

According to a survey conducted by The New York Times (NYT) from the 28th of last month to the 2nd of this month targeting voters immediately after the presidential debate, former President Trump’s approval rating stood at 49%, significantly ahead of President Biden’s 41%. This gap widened compared to the pre-debate survey, where Trump led Biden by 6 percentage points.