What is 'Trumpflation'

Trumpflation is a term referring to the concern that inflation might increase during Donald J. Trump's U.S. presidential administration. Though whether Trumpflation develops is still in question, markets may be signaling they believe Trump will spur inflation in the U.S. dollar.

BREAKING DOWN 'Trumpflation'

Trumpflation indicators emerged in the immediate aftermath of Donald Trump's election as president. After Donald Trump emerged as the victor of the 2016 presidential election early in the morning of November 9, markets began to indicate strongly that higher inflation was on the way. According to a Bank of America Merrill Lynch (BAML) report released the following day, rolling eight-week inflows to Treasury Inflation Protected Securities (TIPS), the par value of which is linked to the consumer price index (CPI), hit a record. Ten-year Treasury yields rose 30 basis points to 2.15% between November 8 and November 10. The result was a steeper yield curve, an indication of rising inflation expectations.

The yield curve has continued to steepen in the months since and currently stands at 3.07% as of May 30, 2018.

Why Trump's policies could impact inflation

There are a number of reasons Trump's policies could cause a shift away from a disinflationary post-financial crisis environment. The president has promised to spend $1.5 trillion on infrastructure projects over ten years, although recent indicators suggest that an overhaul of that level is unlikely to go through. While he has separately promised to reduce or even eliminate the nation's $19.8 trillion debt, most independent analyses agree that Trump will raise deficit spending. The resulting boost to the economy is likely to spark reflation.

At the same time, Trump's (not entirely consistent) hostility to the current Federal Reserve's accommodative policy indicates that he will shift the burden of stimulus from monetary to fiscal policy. That move could signal the end of an era of central bank bond-buying (the Fed's quantitative easing program ended in October 2014, but QE continues in Japan and Europe). Forced demand for bonds has pushed down interest rates to the extent that much of the world's sovereign debt carries negative yields.

A number of Trump's other policies are seen as inflationary. Tax cuts are expected to boost after-tax incomes. Curbs on immigration are expected to push wages up. Protectionist policies are expected to raise import prices. At the same time, Trump's galvanizing effect on economic nationalists elsewhere in the rich world could see his policies emulated in other major markets.

Trumpflation is not guaranteed to happen. Trends such as continued technological innovation, an aging population and swelling global debt continue to push down prices, as BAML pointed out in an October 2017 report. The size of the national debt could also put a damper on the effects of further stimulus, keeping growth and inflation in check. Lacy Hunt, executive vice president at Hoisington Investment Management Co., told the Wall Street Journal on November 16 that from 1952 to 1999, taking on $1.70 in additional non-financial debt would lead to $1 in gross domestic product (GDP) growth. By 2015, the amount of debt needed to produce $1 in growth had risen to $4.90.

  1. Inflation Protected

    Inflation protected refers to types of investments that provide ...
  2. Monetary Policy

    Monetary policy is the actions of a central bank, currency board ...
  3. Reflation

    The term "reflation" refers to a form of policy that is enacted ...
  4. Indexation

    Indexation is a method of linking the price or value of an asset ...
  5. Policy Mix

    The combination of fiscal and monetary policy a nation's policymakers ...
  6. Core Inflation

    Core inflation is the change in prices of goods and services ...
Related Articles
  1. Insights

    Why the Market May Not Trust Trump Long Term

    The 30-year Treasury yield says the market doesn't believe Trump's policies will work long term.
  2. Insights

    BAML: Trump Sparks 'Great Rotation' in Bonds, Stocks, Metals

    Investors are pouring out of bonds and metals in favor of U.S. equities.
  3. Insights

    Inflation: Three Investments for Rising Prices (BAC)

    BAML says investors should look to inflation-protected assets as they see price rises arriving sooner than most expect
  4. Investing

    Real Bond Yields Cast Doubt on the Trump Rally

    Fading Rally: Plunging real yields on 10-year U.S. bonds are a sign that investors are skeptical about Trump's plans
  5. Investing

    Bond Inflows Spike: Too Soon to Call the Bull Market Over?

    "A little wobble."
  6. Insights

    The Importance Of Inflation And GDP

    Learn the underlying theories behind these concepts and what they can mean for your portfolio.
  7. Insights

    An America with Donald Trump as President

    Take a closer look at some of policy proposals from Republican presidential candidate Donald Trump, and what a future with President Trump might look like.
  8. Insights

    BAML Calls Time on the Deflationary Old World

    A 35-year cycle defined by liquidity, globalization and economic inequality is coming to an end. What comes next will be very different, says a new report.
  9. Insights

    President Trump's Many Stances on Monetary Policy

    Where does President Trump stand on interest rate policy? No one really knows.
  10. Insights

    A Primer On Inflation

    Inflation has a negative connotation, but is it all bad or does it offer some tangible benefits?
  1. What is inflation and how should it affect my investing?

    The rate of inflation is important as it represents the rate at which the real value of an investment is eroded and the loss ... Read Answer >>
  2. What causes inflation, and does anyone gain from it?

    In this article, we will examine the fundamental factors behind inflation, different types of inflation and who benefits ... Read Answer >>
  3. Which economic factors impact treasury yields?

    Discover the economic factors that impact Treasury yields. Treasury yields are the benchmark yield for the rest of the world, ... Read Answer >>
  4. How does quantitative easing in the U.S. affect the stock market?

    Read about the impacts of quantitative easing, or QE, on prices in the stock market, and learn some of the possible implications ... Read Answer >>
  5. How does quantitative easing in the U.S. affect the bond market?

    See why it is very difficult to evaluate the impact of the Federal Reserve's quantitative easing, or QE, program on bond ... Read Answer >>
Hot Definitions
  1. Financial Risk

    Financial risk is the possibility that shareholders will lose money when investing in a company if its cash flow fails to ...
  2. Enterprise Value (EV)

    Enterprise Value (EV) is a measure of a company's total value, often used as a more comprehensive alternative to equity market ...
  3. Relative Strength Index - RSI

    Relative Strength Indicator (RSI) is a technical momentum indicator that compares the magnitude of recent gains to recent ...
  4. Dividend

    A dividend is a distribution of a portion of a company's earnings, decided by the board of directors, to a class of its shareholders.
  5. Inventory Turnover

    Inventory turnover is a ratio showing how many times a company has sold and replaces inventory over a period.
  6. Watchlist

    A watchlist is list of securities being monitored for potential trading or investing opportunities.
Trading Center