Trump could plunge the US into recession, says leading economist | Close of Business | ABC NEWS

Key Concepts

• Trumpomics: Economic policies and actions associated with Donald Trump's presidency.
• Stagflation: A combination of economic stagnation (slow growth, rising unemployment) and inflation (rising prices).
• Tariffs: Taxes imposed on imported goods.
• Federal Reserve (The Fed): The central banking system of the United States.
• Monetary Policy: Actions undertaken by a central bank to manipulate the money supply and credit conditions to stimulate or restrain economic activity.
• Osrade (Export Market Development Grant): An Australian government grant program designed to assist businesses with export-related costs.
• Offset Account: A bank account linked to a mortgage that reduces the amount of interest paid on the loan.
• K-Beauty: Korean beauty products and skincare routines.
• Glass Skin: A K-beauty term referring to skin that is exceptionally smooth, clear, and luminous.

US Economy Under Trumpomics

• Employment Growth Slowdown: Justin Walters points out that US employment growth has slowed significantly in recent months, dating back to around April. He sarcastically notes that Trump's promise to "liberate" the American economy seems to have liberated it from job growth.
• Economic Uncertainty: Walters argues that Trump's policies, including tariffs and other actions, have created chaos and uncertainty in the economy. While economic uncertainty has decreased slightly recently, it remains at extraordinarily high levels.
• GDP as an Unreliable Indicator: Walters suggests that GDP is not currently a reliable indicator of the US economy due to import surges driven by fears of tariffs, which distort the data.
• Negative Sentiment: Consumer and business sentiment is negative, with expectations of rising unemployment and inflation.
• Policy Mess: The US economy is facing a "policy mess" characterized by uncertainty, incompetence, and attempts by the president to interfere with the Federal Reserve.

Recession and Stagflation Risks

• Recession Probability: Walters estimates that if Trump were to act "sensibly," there is a 25% chance of a recession in the next year. However, if Trump continues with "full throttle Trumpism" (undermining the Fed, alienating trading partners, dismantling the bureaucracy, and promoting crony capitalism), the probability of a recession could rise to as high as 70%.
• Stagflation Threat: Walters warns that the US is already in the early stages of stagflation, with unemployment and inflation slowly creeping up. He notes that the effects of tariffs have not yet been fully felt, as foreign countries have not lowered their prices as Trump predicted.
• Tariff Impact: American importers are currently absorbing the costs of tariffs, but they are likely to pass these costs on to consumers once the tariffs are perceived as permanent.

Federal Reserve Independence

• Attacks on the Fed: Trump has repeatedly attacked the Fed chairman and attempted to remove Governor Lisa Cook, raising concerns about the Fed's independence.
• Political Interference: Walters argues that Trump's plan to "stack the Fed with Trump folks" would lead to monetary policy being run out of the White House, potentially in the president's political interests rather than the best interests of the American people.
• Turkey Example: Walters draws a parallel to Turkey under Erdogan, where a populist leader with a love of low interest rates took over the central bank, leading to a surge in inflation.

Osrade Grant Process Issues

• Delays and Rejections: Several Australian businesses are experiencing significant delays and rejections in their applications for Osrade's Export Market Development Grant.
• First-In, Best-Dressed Model: Osrade implemented a "first-in, best-dressed" model for grant applications, leading to a rush to apply and complaints about the application portal crashing.
• Unintended Consequences: The new system, intended to simplify the process and provide larger grants to successful businesses, has created unintended side effects, including increased competition and difficulties for applicants.
• Funding Cuts: A Melbourne University study found that the Osrade scheme delivers good value for money, but it has suffered from significant funding cuts over the past 25 years.

Savings Account Interest Rates

• Falling Rates: Interest rates on savings accounts have fallen in response to three cuts in the official cash rate by the Reserve Bank.
• Conditional Rates: The highest interest rates on savings accounts are often subject to strict monthly terms and conditions, which many account holders fail to meet.
• Offset Accounts: For those with a mortgage, putting spare cash into an offset account may be a better option than a savings account, as it effectively reduces the home loan balance on which interest is charged.

A&Z Job Cuts

• 3,500 Job Cuts: A&Z is cutting 3,500 jobs, around 8% of its global workforce, as part of a restructure aimed at improving risk management and creating a leaner operation.
• AI Not the Primary Driver: The bank's boss, Nuno Matos, insists that the job cuts are not primarily driven by artificial intelligence.
• Union Concerns: The Financial Services Union has expressed outrage at the job cuts, particularly the way in which staff were informed.
• Analyst Expectations: Analysts expect more mass layoffs in the banking sector over the next 12 months due to AI and other cost efficiencies.

ASX Market Performance

• Global Market Rally: Global stock markets, including the US and Japan, have been rallying, driven by hopes of interest rate cuts.
• Aussie Market Mixed: The Australian share market has had two consecutive weeks of losses, despite a strong performance by financial stocks.
• Tech Sector Strength: The tech sector has been the best performing sector, boosted by Oracle's strong performance in the US.
• Gold's Rise: The gold sector has risen significantly this year, driven by a weaker US dollar and its role as a safe haven asset.
• Energy Price Decline: Energy prices have fallen due to increased oil production by OPEC plus, offsetting increasing demand.
• Australian Dollar Strength: The Australian dollar is at a 10-month high against the US dollar, which can negatively impact returns for Australian investors with global investments.

K-Beauty Popularity

• Rising Popularity: K-beauty products and skincare routines are gaining popularity in Australia, driven by the promise of "glass skin" and attractive prices.
• Manufacturing Advantage: South Korea has a manufacturing advantage due to lower wages and a strong infrastructure for cosmetic production.
• Gen Zed and Millennials: K-beauty products are particularly popular among Gen Zed and younger millennials.
• Social Media Influence: Social media influencers play a significant role in promoting K-beauty products, with viral videos showcasing their effectiveness.
• Environmental Concerns: The high product turnover and use of plastic packaging in K-beauty raise environmental concerns.

Conclusion

The news program covers a range of business and economic topics, including concerns about the US economy under Trump's policies, issues with the Osrade grant process in Australia, the impact of falling interest rates on savings accounts, job cuts at A&Z bank, the performance of the ASX market, and the rising popularity of K-beauty. The overall tone is cautious, highlighting potential risks and challenges in various sectors.