The Trump effect: toward always more too dovish Central Banks?

US President Donald Trump’s unprecedented pressure on Fed governor Jerome Powell may well bear fruit along with the all-out US trade war against China, Mexico and the European Union (EU).

The delicate combination of political pressure, diplomatic gamble and global growth fears generated by the Trump administration forces both governments and central banks to review their forecast of global economic developments in the short and medium term.

The increased uncertainty among investors has led the Fed to keep its rates unchanged, a decision that convinces many analysts that a rate cut could even occur as early as July 2019 in full-reversal of the program of hikes that was envisaged eight months earlier.

At the same time, the European Central Bank (ECB) paved the way for a second broad accommodating policy sequence for the future successor of its president Mario Draghi who, in a few words, sent European stock markets back to their higher levels.

Against this backdrop which may be too consensual, Cyceon has two hypotheses, the first in the long term which questions how to exit a monetary stimulus that somehow has become perpetual, the second in the short term that does not exclude the possibility that the Fed surprises everybody by finally announcing an increase in its benchmark rate.