Risks ignored by the US stock market? J.P. Morgan Asset Management: Trump's tariff plan may trigger stagflation issues.

J.P. Morgan Asset Management's Chief Global Market Strategist David Kelly said that Trump's aggressive tariff plan could slow down the global economy and bring upward pressure on inflation in the US, highlighting the risks that were largely overshadowed during the stock market rebound after the US election. Kelly said, "The first smoke signal is that the tariff measures will be very aggressive, almost nothing can cure inflation stagnation, which means that inflation rises while the economy slows down. Countermeasures will only make the whole world worse. Tariff issues will trigger many conflicts. If you hit someone's nose, they will strike back. That is why they call it a tariff war." During the campaign, Trump said he could impose a 60% tariff on products from China and a 10% to 20% tariff on goods from other places. He dismissed concerns that tariffs would harm the US economy, calling tariffs the "most beautiful word" in the dictionary and pointing out at one time that the US prospered in the 19th century by imposing high tariffs without federal income tax. It is currently unclear which specific policy plans Trump will push, but his victory has prompted multinational companies to reconsider their global supply chains and discuss raising prices to offset costs. Meanwhile, investors are considering the impact of protectionism on financial markets and US trading partners (including Europe). Robert Lighthizer, one of Trump's key advisers who served as the US Trade Representative in his first administration, recently advocated protectionist policies in a commentary in the Financial Times. Other Wall Street strategists have also issued similar warnings. In the bond market, speculation from traders that Trump's tax cuts and tariff plans will prevent the Federal Reserve from lowering interest rates has led to a significant increase in bond yields. In the US stock market, these concerns have largely given way to optimism about his policies boosting corporate profits. Strategists at TD Securities led by Oscar Munoz and Gennadiy Goldberg predict that, as central bank policymakers assess the impact of Trump's policies, the Fed will pause interest rate cuts in the first half of 2025. J.P. Morgan's rate strategist also lowered expectations for Fed rate cuts. Kelly believes that a clash between the Fed and the Trump administration is ultimately possible because Trump's policies may be inconsistent with monetary policy, which still focuses on suppressing economic growth to curb inflation. However, Fed chair Powell refused to comment last week on how Trump's policies would affect the Fed's future actions. Kelly added, "The Fed won't assume, speculate, or predict what tariffs or fiscal policy will be. At some point, they will have to fight, but I don't think they want to pick this fight now."