WSJ What’s News - What Trump’s Win Means for Central Banks

Episode Date: November 7, 2024

A.M. Edition for Nov. 7. Donald Trump has said he wants a say on interest rates when he moves back into the White House. Economics editor Paul Hannon explains how his policies might alter the outlook for growth and inflation in the U.S. and around the world. Plus, Germany’s governing coalition collapses, adding to uncertainty over how Europe will fare in a Trump presidency. And Nissan says it’s cutting 9,000 jobs and joins fellow Japanese carmakers Honda and Toyota in slashing its guidance. Luke Vargas hosts. Sign up for the WSJ’s free What’s News newsletter. Learn more about your ad choices. Visit megaphone.fm/adchoices

What does possible sound like for your business? It's having the spend to power your scale with no preset spending limit. Redefine possible with Business Platinum. That's the powerful backing of American Express. Terms and conditions apply. Visit amex.ca slash business platinum. It's Fed Day. We'll look at how Trump's presidency could alter central bankers' calculus in the US and around the world.

They would probably become quite cautious in a situation where a lot of things were changing quite quickly. But they couldn't stay too cautious for too long because we've just been through a series of shocks in which they were criticized heavily for not moving speedily enough. Plus, as European economies brace for four more years of Trump, a governing breakdown in Berlin adds pressure to putting Germany's political house in order. And Nissan cuts jobs and production capacity amid tough times for Japanese carmakers. It's Thursday, November 7th.

I'm Luke Vargas for the Wall Street Journal and here is the AM edition of What's News, the top headlines and business stories moving your world today. Well from a busy week in politics, central bank moves are now about to get their moment in the spotlight. The Federal Reserve has expected to lower US interest rates this afternoon, likely preceded several hours by a similar move from the Bank of England. Monetary policy for now at least may be moving in sync across the Atlantic, but what could

Donald Trump's election mean for that convergence? To take a stab at that consequential question, I've asked Dow Jones Newswire's economics editor Paul Hannon to drop by this morning. Paul, both the Fed and the Bank of England are in cutting mode right now, but big changes are likely afoot in global policy after Tuesday's election. So let's start with the U.S. How might we expect a Trump presidency to shift the Fed's thinking? Well, I mean, if he follows through on a lot of the things that he was talking

about during the campaign, so we've got a rise in tariffs on imports from virtually all of the US's main trading partners, you've got the extension of existing tax cuts, maybe new ones. And you have potentially deportations of immigrants that would kind of reduce the number of workers available to economists. All of those add up to more inflation. But exactly when those things kick in is difficult to predict right now. And so what we have is a sort of expectation among investors that rate cuts will be fewer in number next year than they had previously expected and less certain.

Given the possible ramifications of Trump's policies, Paul, could we see a scenario where rates might even have to go back up, reversing the course they've been on? I think you can see that scenario. It's not considered right now to be the most likely one. But if things did get out of control, I mean, possibly because expectations that the Fed's independence was in peril, you know, gained ground, then you could see a revival in inflation that is strong enough to warrant a rate hike. Right. I mean, Trump himself has suggested that as president, he should have a say over the Fed's

monetary policy decisions. And he's often said he loves low interest rates. So the possibility that the Fed's independence could be blunted, I imagine, throws a bit of a wild card into the equation. Investors obviously don't expect that to happen quickly or immediately. They're not counting on the future president restraining the Fed directly. And it's quite a challenging thing for that independence to be blunted. There are many institutional safeguards around the Fed. Not least, Congress may still be a supporter of Fed independence, even if

the president would like to have more influence. So it is a bit of a wild card, yeah. Looking abroad, how might other central banks need to adjust course in a Trump presidency? That is a very open question because they may face very conflicting forces here. They would face tariffs that would weaken their economies. For example, in Europe, the ECB might in those circumstances consider speeding up its interest rate cuts, right? But on the other hand, tariffs generally applied, there would presumably be retaliation against the US if the US went first, would have an inflationary impact within the Eurozone. So how does that balance out?

They would probably become quite cautious in a situation where a lot of things were changing quite quickly, but they couldn't stay too cautious for too long because we've just been through a series of shocks in which they were criticized heavily for not moving speedily enough. So it looks to me like a very tricky job for central bankers in the next 12 months to two years for sure. And they'd have to navigate a strong dollar most likely as well. Yeah, exactly. The dollar surged in the last few days that converts into inflationary pressure in Europe, Latin America, Asia, because a lot of imports are denominated in dollars.

It would therefore be risky for central banks in those countries to cut rates too quickly. Paul Hannan is the economics editor for Dow Jones Newswires. Paul, thanks as always. Appreciate you stopping by. Thanks, Luke. And in other markets news we'll be watching today, we're expecting earnings from Warner Brothers Discovery, Hershey, and Moderna before the bell with Airbnb due to report in the afternoon.

Coming up, Germany's fractious government collapses, casting political uncertainty over Europe's largest economy. We've got that story and more after the break. Germany's governing coalition has collapsed, tipping the economically embattled country into political crisis and adding to uncertainty across Europe about what Donald Trump's election victory could mean for the continent. The Journal's Germany bureau chief Bertrand Benoit told me that while there were multiple cracks in the three-year governing alliances foundations, its ultimate demise was triggered by the firing of the country's finance minister over economic policy disagreements that

focused on how to pull Europe's largest economy out of a stubborn recession. Germany is likely to shrink as an economy this year. That would be the second year in a row. It's been underperforming other economies in Europe, in some cases by wide margin. It faces a crisis of its entire economic model, which is based on manufacturing a lot of goods and selling them around the world.

None of this is working anymore because international trade is not working as it used to be. And because China is not absorbing the amount of German goods that it used to and has become a much fiercer competitor to German companies, not just in China, but around the world. So this entire system is no longer adapted to the way the world is.

And it's facing another wall of challenges with the election of Donald Trump. Bertrand, your connection is faltering a little bit. I know you're dashing around Berlin this morning. We did speak about the global economic significance of Trump's policies earlier. I wanna ask about the political significance of this German coalition breaking apart.

This is relevant elsewhere, right? As other European countries try to govern from the center amidst the rise of more anti-establishment factions. Yes, there is a strong dissatisfaction with incumbents across Western democracies. The difference in Europe is that in many cases with multi-party political systems. This has translated into very fractured Parliament indecisive election results. And as a result, it's been really difficult for countries in Europe to form governments that agree on a wide set of policies. You've had these marriages of convenience between parties that have a very limited margin of maneuver politically and can't pass laws and policies easily, especially in crisis times and quickly. So you've seen that

in Germany, you probably will see that after the next election. It's very likely that the next government will be just as divided and fractious as the previous one was. That was the Journal's Germany bureau chief Bertrand Benoit and the election he just referred to there could be brought forward to as early as March. Meanwhile, Pakistan's government is tightening its grip on power, a move critics and political experts say is intended to quash any challenge from the party of jailed opposition leader and former Prime Minister Imran Khan, which won the most seats in elections earlier this year.

In recent weeks, Pakistan's ruling coalition has passed legislation to curb the powers of the courts, allow the detention of people who have committed no crime, and extend the term of the country's army chief. It says the laws are meant to bring stability and accuses Khan, whose arrest prompted violent protests, of spreading chaos. Moving to business now, Nissan Motor plans to cut 9,000 jobs, reduce its production capacity by a fifth, and sell part of its stake in Mitsubishi Motors as part of a global restructuring. It also cut its guidance today, following in the footsteps of Honda and Toyota, both

of which slashed their forecasts yesterday, citing weak sales. And TikTok's Canadian arm has been ordered to dissolve its business operations there, with the country's industry minister citing specific national security risks without elaborating. However, the government won't block access to the TikTok app for Canadians or their ability to post on it, leaving the decision of whether to use it to individuals. A spokeswoman for TikTok, which is owned by China's ByteDance, said Ottawa's decision would eliminate hundreds of jobs and that it would challenge the order in court. And that's it for What's News for Thursday morning.

Today's show was produced by Daniel Bach and Kate Bullivant with supervising producer Christina Rocca and I'm Luke Vargas for the Wall Street Journal. We will be back tonight with a brand new show. Until then, thanks for listening.