Trump has stated that he will not revisit major entitlement costs, such as social security and Medicare. And with no concrete plans for how he’ll replace Obamacare – as well as promises to ramp up spending on infrastructure and defence – spending during Trump’s time in charge looks set to skyrocket.
To counteract this, he has announced four main proposals to reduce spending:
- Scale back federal programmes, notably those associated with the Department of Education and the EPA
- Renegotiate government contracts
- Sell off government assets
- Cut out ‘waste, fraud and abuse’
What could the market impact be?
Promises of more spending were probably the biggest reason why US markets rallied after Trump’s election victory. By injecting more capital into the economy, Trump could offer a serious boost to US businesses and the dollar.
However, if national debt starts growing at a problematic rate then his spending plans could quickly turn sour. With Republicans often reluctant to sanction spending increases, and Trump himself reluctant to discuss the subject in the run up to his inauguration, this may be one of the policies he is more flexible on.
Key market to watch: Bonds. Fiscal policy can have a major impact on bond markets, so bond investors will be closely watching any developments on Trump’s spending plans.