REAL ECONOMY BLOG | January 15, 2025
It’s no mystery that rising uncertainty over the new presidential administration’s policies is one of the major risks to financial markets and the economic outlook.
Volatility across asset markets has been rising, and is poised to continue increasing, as investors adjust to changes in fiscal, trade and financial policies, measures of volatility show.
Volatility will be evident in equity valuations; long-term bond yields, which have risen despite rate cuts by the Federal Reserve; and global currency markets, where currencies have been depreciating against the U.S. dollar.
In addition, U.S. firms and households will pull spending forward ahead of the expected rate shock that will accompany a new round of tariffs.
To be sure, policy shifts with a new administration are not new. What is new, however, is the scale of the uncertainty this time around, and that is extracting a tax across financial markets.
It begs a larger question: Will the volatility in financial markets spill into the real economy, causing firms to pull back on critical investments and households to reduce spending?
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This article was written by Joseph Brusuelas and originally appeared on 2025-01-15. Reprinted with permission from RSM US LLP.
© 2024 RSM US LLP. All rights reserved. https://realeconomy.rsmus.com/morning-market-minute-the-tax-over-policy-uncertainty-is-rising/
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