Daily Brief Macro: Trump Administration Begins Weaning US Economy Off Addiction to Fiscal Profligacy and more

• The mainstream media have focused on the short-term inflationary impact of tariffs, but the longer-term implications are deflationary.  Prevailing conditions are crucial in determining the size of the inflationary impact.  
• The US economy and financial markets became addicted to prolonged fiscal and monetary policy profligacy after the COVID-19 pandemic. Government-related employment adjustment has just commenced under the Trump administration.  
• Fiscal policy will be tightened in 2026 due to expiring tax provisions passed in 2017. President Trump needs sizeable tariff revenues if their extension is not to jeopardise government finances.

• The market’s risk appetite was recently dented by a heightened fears that Trump is engineering a recession.
• Our analysis of current economic conditions shows low recession risk and our base case calls for a growth scare.
• We assess recession odds at one in three and we will continue to monitor the evolution of changes in business confidence and financial conditions to measure future slowdown risk.

• We are intermediate-term cautious about the stock market based on continuing signs of weak breadth.
• In the short run, however, sentiment has become overly bearish and the price momentum unwind that sparked the latest downdraft seems to be abating.
• Our base case calls for a short-term relief rally, followed by a choppy decline into H2 2025.

• Research and agentic workflows in finance are evolving with the use of AI and large language models like ChatGPT.
• LLMs can process information quickly, analyze data, and assist in generating investment ideas, but human oversight is crucial.
• Using a multimodal approach with different LLMs specialized for specific tasks can enhance decision-making in investing and democratize access to sophisticated analysis tools.

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