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Market Viewpoints

"Too many of us are not living our dreams because we are living our fears.

On Wednesday, the US Federal Reserve raised the Federal­Funds rate by +0.25%, yet didn’t alter its growth and inflation projections much. Like everyone, the Fed is in wait­and­see mode as to the reflationary promises of the incoming Trump administration. If we look at the recent history of US recessions, on average, the US economy has experienced a recession every eight years. The current economic expansion, which started in June 2009, is now in its ominous eighth year. Almost everyone is of the view that Trump will have to deal with a recession or a financial crisis, at some stage during his term in office. The Fed knows that it needs to hike as much as it can in order to prepare for the next crisis. I would not be surprised if we saw another rate hike at the next meeting in January. As we look back at 2016, the big event was certainly Brexit. It signalled the rise of “populism,” which is now firmly entrenched in the UK, the US and across Europe. The post­Second World War principles of Social democracy (particularly in Europe) are having an existential moment and populist nationalism is in ascendance. President­elect Trump’s policies are largely a “basket of unknowables.” However, on the issue of trade, Trump has held a consistent view for a long time. At the core, Trump is a mercantilist, who believes trade deficits are bad for workers and the economy and that trade tariffs are one way to overcome them. My biggest fear for 2017 is that protectionism gains ground, first in the US, and then everywhere else in response. Much like the 1930’s, when the signing of the SmootHawley Act by another Republican President, Herbert Hoover, unleashed protectionism and the collapse of global trade. The well­being of the American people, and indeed the world, are predicated on the smooth flow of global trade and capital.

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