Will Trump policies favour middle-class? Not for long, says Nouriel Roubini

Trump's policies will eventually crush the markets, spur inflation and impact middle-class workers

Wall Street stocks surged to record highs on Friday and the US dollar and bond yields rose after US President Donald Trump said he would release a "phenomenal" tax plan in the next few weeks. However, crisis-famed economist Nouriel Roubini warned investors that Trump's political agenda outweighs the positives.

Investors have been waiting for details on Trump's election campaign pledge to stimulate economic growth with large-scale fiscal stimulus through infrastructure spending and tax cuts. 

“Trump’s fiscal-stimulus package might end up being much larger than the market’s current pricing suggests,” Roubini also known as Dr Doom wrote in an opinion piece for Project Syndicate. “With the US economy already close to full employment, Trump’s fiscal stimulus will fuel inflation more than it does growth.”

Here are five reasons why Trumponomics will fail to sustain a continued rise in equity prices:

• Donald Trump’s fiscal incentive has accelerated long-term interest rates which will hamper capital spending and impact all the sectors driven by interest rates, including real estate.

• Trump’s expenditure plans may fuel inflation, which will eventually force the Federal Reserve to increase the interest rates by a vast margin. 

• Trump’s extensive fiscal policy and monetary tightening are likely to negatively impact middle class or blue collar incomes and employment prospects. Moreover, his protectionist measures will hit the overall financial conditions across the world which could lead to a trade war. 

• International markets will likely go through a rollercoaster ride because of Trump’s questioning US alliances, cozying up to American rivals such as Russia, and irking global powers such as China. This will also spook world leaders and multinational corporations.

• Lastly, even if Trump takes some damage-control methods, that can only make matters worse. In order to get his way with the Federal Reserve, he may intervene to weaken the dollar, or impose capital controls to limit dollar-strengthening capital inflows.

Therefore, although Trump’s policies might be good for short-term, the long-term aftermath will outlive them. The possibility of the Federal Reserve hiking rates is almost positive as they have continuously accelerated the money supply even though US central bank’s balance sheet has expanded by $5 trillion since 2008 crisis, said Roubini.