mcgregor mccance
From taxes to tariffs, trade to regulation, changes are coming to business and economic interests during President Donald Trump’s second term.
The Darden Report commissioned a survey from experts at the Darden School of Business to get their responses on several areas that are certain to be affected by the combination of the incoming Trump administration and a Republican-controlled Congress. Ta.
Today, Rodney Sullivan, executive director of the Richard A. Mayo Asset Management Center, talks about inflation risk and its impact on investors.
Darden lecturer Steve Soltis, co-founder of strategic communications consultancy Arvo Advisory, will discuss the importance of effective corporate communications in an environment that can change rapidly. Arvo Advisory works with Fortune 500 CEOs in the consumer goods, hospitality, banking, and retail industries.
Sullivan talks about inflation risk
Rodney Sullivan, Executive Director, Mayo Asset Management Center
Inflation has slowed this year thanks to several tailwinds, including rising productivity and a slowing Chinese economy, but risks to the inflation outlook are rising. The combination of the Federal Reserve and a unified Republican administration continuing an aggressive policy of monetary easing by lowering key interest rates warrants a review of the potential impact on economic growth and inflation.
The prevailing belief is that inflation has essentially been defeated and will continue to trend downward gradually to meet the Fed’s 2% annual inflation target. However, there are significant risks to this view. First, US fiscal policy under the Trump administration appears to be focused on expanding tax cuts (for businesses and households). These cuts could widen the budget deficit, especially if not offset by spending cuts. Another policy proposal includes new import duties.
President Trump’s goals are to reduce the trade deficit and boost domestic production, and there is a good chance he will achieve his intended results. However, retaliatory measures by trading partners could spark a trade war and lead to inflation. Overall, the combination of stimulative fiscal and monetary policy and tough import tariffs could boost both economic growth and inflation.
The risks to monetary policy are that the Fed was too quick to declare “mission accomplished” in the fight against inflation, and that its 0.75% interest rate cuts since September have been overly aggressive, undermining progress in improving inflation. It is endangering the
It is important to note that, overall, stimulative fiscal and monetary policies are positive for U.S. nominal GDP growth and U.S. corporate profits. But they are negative for the trajectory of the U.S. budget deficit and debt. There appears to be some concern in the bond market, as the benchmark 10-year Treasury yield has risen 55 basis points since early September and now stands at 4.3%.
So while future inflation increases are far from certain, the above suggests that the disinflationary stall may develop further and the Fed may respond. Increasing budget deficits caused by low tax rates, tough import tariffs, and stimulative fiscal and monetary policies could be a policy panacea for causing “echo inflation” (another period of unexpected inflation). be. But for now, the U.S. economy remains resilient, with structural tailwinds from improved labor productivity from investments in AI supporting economic growth while trying to contain inflation.
Sullivan talks about investment implications
So what are the implications for investors?Equity investors’ concerns about tariffs and rising budget deficits have been overshadowed by a change in government to a more pro-business environment that promotes tax cuts and deregulation. It became. However, the bond market has not recovered, as evidenced by the recent rise in real yields due to higher nominal economic growth and the prospect of widening fiscal deficits. Expect some volatility in stock and bond markets in the coming months as markets try to cut through the fog caused by the upcoming change in policy regime.
“We can expect some volatility in equity and bond markets in the coming months as markets try to cut through the fog caused by the upcoming shift in policy regimes.”
rodney sullivan
A diversified portfolio should include assets that protect investors from unexpected inflation. Chief among these are Treasury Inflation-Protected Securities (TIPS), which pay a fixed interest rate but whose principal adjusts upward (or downward) to match changes in inflation. Although not guaranteed protection against inflation, other assets to consider include goods, real estate, and stocks. Depending on the overall economic environment, rising inflation typically causes the prices of these assets to rise. No matter the implementation, protection from inflation should always be considered in portfolio construction.
Communication strategy explained by Soltis
Darden School of Business instructor Steve Soltis is a corporate communications expert who has worked at The Coca-Cola Company and UPS. (Posted photo)
Most smart business leaders weren’t caught by surprise by national elections. Their corporate strategy, communications and government affairs teams have been preparing plans and messages for some time, running a wide range of scenarios for both outcomes.
Externally, a large part of the messaging, particularly for companies in the healthcare, defense, energy, banking, technology and global supply chain sectors, is how organizations are building resilience into their operating and business models. The focus will be on the dolphins.
We’re also seeing a lot of activity outlining the evolving 2025-2027 strategic plan and how it will work with not only the new administration in Washington, but also new administrations around the world (of course there are many). there is). In particular, our media relations, government relations, and investor relations teams will be extremely busy over the next few months as we prepare executives for media, investor, and public policy engagement.
Similar messages apply internally, and we are already seeing CEOs sending company-wide emails and other communications about how they will work with the new administration. At the same time, smart leaders need to address the range of issues that are top of mind for their employees, including reaffirming their commitment to core values of inclusion, diversity, and environmental protection.
That being said, I’m not buying into the theory that companies are panicking or shocked by things like this. Not a smart person anyway. There was plenty of time to play out these scenarios, build plans, and craft the right messages to support those plans.
