Senior central bank reporter: To win the election, Trump’s “three major levers” are stimulating the economy, making it “highly likely to succeed” this year, but...

Trump is taking unprecedented measures to get the U.S. economy "running at full speed," and is very likely to succeed this year. On January 14th, Wall Street Journal senior journalist Greg Ip wrote that Washington's three main levers for controlling economic growth—fiscal policy, monetary policy, and credit policy—have never been coordinated in history, but this year, all have shifted toward stimulus, reflecting Trump and Congressional Republicans' focus on accelerating economic growth with the goal of winning the midterm elections in November. According to Greg Ip's analysis, in terms of fiscal policy, the tax bill Trump signed in July is injecting nearly $200 billion in stimulus into the economy; in the credit sector, regulators are relaxing bank capital requirements and lowering merger thresholds; in monetary policy, Trump is taking extreme steps to try to control the Federal Reserve, demanding that the next chairman substantially cut interest rates. Analysts expect these measures to be enough to boost economic growth by as much as 0.5 percentage points in the first half of the year. The article also points out that this strategy is sacrificing other goals: controlling debt, Federal Reserve independence, and long-term financial stability. Rising debt will make future generations poorer and may trigger a debt crisis; loosening credit regulation may lead to a market crash; and central banks subservient to presidential objectives often end badly. However, these consequences will only emerge in the future. This year, investors are facing a rare situation of policy-driven coordinated stimulus. Fiscal Policy Shift: From Tightening to $200 Billion Injection The article states that in 2025, the U.S. economy will perform strongly, with real GDP growth of about 2.5%, continuing the robust pace of the previous two years. The main drivers are investment in artificial intelligence and data centers, plus consumption boosted by a strong stock market. Notably, this performance was achieved against a backdrop of fiscal tightening—Trump’s tariff policies raised about $200 billion, most of which was borne by American businesses and households. This year's situation is quite different. Average tariff rates will not rise and may even fall if the Supreme Court rules some tariffs illegal. Meanwhile, the tax and spending bill Trump signed in July provides new or expanded tax deductions, especially for state and local taxes, overtime, tips, and seniors. Although these tax cuts are retroactive to early 2025, withholding tables were only adjusted at the start of this year. Piper Sandler policy analyst Donald Schneider points out this will result in a double stimulus: many workers will see higher take-home pay this month and get a refund for last year at tax time. He estimates this will inject close to $200 billion into the economy, enough to boost annualized growth by up to 0.5 percentage points in the first half. The bill’s provisions allowing businesses to fully write off capital expenditures will also spur stronger investment. Credit Gates Opened: From Strict Regulation to Looser Restrictions The article notes that government influence on risk appetite is both psychological and rational. Loose regulation once allowed subprime mortgages to fuel the early 2000s housing bubble. After the financial crisis, new regulations required banks to hold more capital against loan losses and keep enough cash to face withdrawals, limiting their lending capacity. Since Trump took office, regulators have begun to repeal these restrictions. Last year, a set of rules was relaxed so big banks could hold more U.S. Treasury bonds. Capital requirements are about to be eased, barriers to bank mergers are dropping, and enforcement of consumer finance laws has been weakened. All this will stimulate lending. Trump has just ordered Fannie Mae and Freddie Mac to buy $200 billion worth of mortgage-backed securities. These quasi-private companies guarantee trillions in residential mortgages and suffered huge losses when the housing bubble burst, leading to a Treasury takeover in 2008. According to UBS estimates, this move could lower mortgage rates by 0.1 to 0.25 percentage points, boosting home-buying demand. Fed Shift: From "Neutral" to "Stimulus" According to the Wall Street Journal article, former Fed chairman William McChesney Martin was famous for the saying: the Fed's job is to take away the punch bowl just as the party starts to get going—meaning that when economic growth is strong and financial speculation is rampant, the Fed raises interest rates to curb inflation. Trump abhors this. He thinks the Fed chairman should cooperate, not counteract, his other economic policies. "What I want is, when the market is doing really well, rates can go down because our country is getting stronger," he said Tuesday. For this, Trump is taking extreme steps to try to control the Fed. He attempted to fire a board member for allegedly misstating mortgage facts, and now is allowing the Justice Department to launch a criminal investigation into chairman Powell over headquarters renovation costs. Fed officials currently expect rates to be cut by 0.25 points this year from the current range of 3.5% to 3.75%, making rates roughly "neutral"—neither restraining nor stimulating growth. But Trump doesn’t want neutral, he wants stimulus, and insists the next chairman cut rates sharply. His two main candidates—White House economic adviser Hassett and former Fed governor Walsh—have both shown dovish tendencies. Though they may not lower rates to Trump’s desired 1%, market expectations are that, thanks to favorable inflation news (tariff effects fading, lower oil prices, tamed housing inflation), and moderate labor cost growth, the new Fed leadership will have ample reason to pursue a more aggressive easing policy. The Long-Term Cost Is Deferred In its final analysis, the article notes the short-term effects of opening the floodgates of fiscal, monetary, and credit policy are obvious: the economy will see rapid growth. However, this strategy is historically rare precisely because it carries heavy long-term costs. The current policy path does not slow debt growth, and may push the debt-to-GDP ratio past 100%, making future generations poorer and raising the risk of a debt crisis. Easing credit and regulation against a backdrop of high valuations could ultimately trigger a market crash. Additionally, forcing the central bank to serve the president’s political goals rarely ends well. The article points out that nevertheless, with the Fed shifting to easier policy, the bond market "vigilantes" are unlikely to punish budget deficits this year, and a market crash won’t happen instantly. This year’s main theme is policy-driven boom, with consequences to be reckoned with later. Risk Warning and Disclaimer Markets carry risks; investment requires caution. This article does not constitute individual investment advice and does not take into account individual users' specific investment goals, financial situation, or needs. Users should consider whether any opinions, views, or conclusions in this article suit their own circumstances. Investing accordingly is at your own risk.