President Donald Trump has reiterated his commitment to lower interest rates and prices, but achieving these goals will be challenging in the context of a pandemic-transformed economy exhibiting robust growth. Despite efforts to curb inflation, the economy's resilience and strong demand for loans are driving up borrowing costs.
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A healthier economy spurs more Americans to borrow to buy cars, homes, and large appliances, and businesses to invest in IT equipment and factories. Such moves are great for the economy — but more demand for loans to fund all that spending can also keep interest rates elevated. In addition, high-tech firms are ramping up their investment in data centers to accelerate their work on artificial intelligence. Trumpa joint venture between OpenAI, Oracle and Japan’s Softbank to invest $500 billion in data centers and electricity generation to fuel AI research. Before the pandemic, many companies were stockpiling cash and weren’t investing as much, which can keep interest rates lower.
“That’s going to be inflationary, and that’s going to push policymakers to adopt more stringent policies than they would otherwise,” said Gregory Daco, chief economist at EY. “So you’re going to be in a higher interest-rate environment.” Gennadiy Goldberg, head of U.S. rates strategy at TD Securities, says investors are anticipating a continuation of stronger growth, in part fueled by Trump’s proposals to cut taxes and reduce regulation. In that scenario, the Fed would be less likely to cut its key rate.
Another trend that Trump has helped spark is the rise of protectionist measures around the world, after two decades of globalization. That has led to a scramble by multinational corporations to relocate their production from countries that are the target of Trump’s ire, particularly China, to others, such as Vietnam or Malaysia.
ECONOMY INTEREST RATES INFLATION TRUMP ADMINISTRATION WORLD ECONOMIC FORUM
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