The annual meeting agenda of the IMF and World Bank listed issues such as low growth, high debt, and geopolitical escalation, but financial leaders are largely concerned about the possibility of Trump's return to power in the November U.S. elections.
Trump's performance in recent polls has nearly erased Harris's early advantage, becoming a topic of almost every conversation among finance officials, central bank governors, and social group members attending meetings in Washington last week.
Concerns persist that Trump could upend the global financial system by significantly increasing tariffs, issuing trillions of dollars in additional debt, and reversing efforts to combat climate change in favor of more fossil fuel energy production.
Bank of Japan Governor Kazuo Ueda stated, 'Everyone seems to be worried about the high uncertainty of who the next U.S. president will be and what policies the new president will adopt.'
Another anonymous central bank governor expressed this concern more bluntly: 'It feels like Trump might win.'
Trump's pledge to impose a 10% universal tariff on imported goods from all countries would impact global supply chains, likely triggering retaliatory actions and driving up costs. German Finance Minister Christian Lindner stated last Friday that a U.S.-EU trade war would only bring losers.
Trump also attempted to attract American voters by offering various tax cuts, from extending the personal tax cuts of 2017 to exempting tips, overtime pay, and Social Security retirement benefits from taxation. Budget analysts have indicated this could add at least $7.5 trillion to U.S. debt over a decade.
In contrast, Harris's victory is seen as a continuation of Biden's re-engagement in multilateral cooperation on climate, corporate taxes, debt relief, and development bank reform over the past four years. Her plans may also increase debt, but far less than Trump's.
Harris supports a 'targeted' approach and criticizes Trump's broad tariff plan, which would impose a $4,000 consumption tax on American families.
'The Trump trade' is back, with assets from stocks to Bitcoin to the Mexican peso betting on a Trump victory.
The dollar has seen its largest monthly gain in two and a half years, with the dollar index up 3.6% so far this month. Standard Chartered analyst Steve Englander attributed 60% of the dollar's rise to increased odds for Trump in the betting markets.
Brazil's central bank governor Roberto Campos Neto stated that in this dollar-sensitive economy, betting on a Trump victory has already priced inflation impacts into long-term interest rate futures, adding that both Trump and Harris's fiscal plans include inflation components.
The IMF announced that the global fight against inflation has achieved most of its victories without significant unemployment. IMF President Kristalina Georgieva urged policymakers to begin reducing the massive debt caused by the COVID-19 pandemic or face a future of slow growth that would increasingly frustrate the public.
The Federal Reserve's significant rate cut of 50 basis points was supposed to mark the 'Goldilocks moment' for emerging market growth, but the potential for a larger U.S. deficit during a Trump presidency has raised concerns that the party may soon be over.
Turkey's Finance Minister Mehmet Simsek stated during a conference break, 'A larger deficit means increasing debt, and increasing debt means rising long-term interest rates, which could also mean a strong dollar. High long-term U.S. interest rates and a strong dollar are not favorable for emerging markets.'
Concerns are widespread that a trade war could lead to a stagnation in easing inflationary pressures. South African Reserve Bank Governor Lesetja Kganyago stated, 'If other countries respond to one country's tariff increases with tariffs of their own, it will lead to rising prices, and the process of combating inflation faced by global central banks could become challenging.'
The IMF Steering Committee Chair and Saudi Finance Minister Mohammed Al-Jadaan emphasized the historic cooperation with both Republican and Democratic administrations in the U.S., stating, 'We just need to ensure that this dialogue continues.' This sentiment resonated with other participants at the meeting.
Article reposted from: Jin Shi Data