Global financial advisory giant, deVere Group, issued a stark warning to investors to prepare for significant turbulence as the Federal Reserve may find itself at odds with the economic consequences of President Trump’s fiscal policies. 

Growing inflationary pressures are likely to reappear, and the Fed’s potential response could signal a seismic shift in financial markets.

The potential fallout of a Fed-Trump policy clash is not limited to the US. The effects would be felt across global markets, particularly in emerging economies. Countries with high dollar-denominated debt are especially vulnerable to rising US interest rates, which could increase borrowing costs and destabilise currencies.

Since taking office, Trump has doubled down on his ambitious fiscal stimulus agenda, tax cuts, and an expansive tariff regime. While these measures aim to stimulate economic growth, they have also reignited concerns about inflationary pressures, which remain stubborn.

This potential battle is not unprecedented. During Trump’s previous presidency, his frequent clashes with the Fed over monetary policy were well-documented. In 2018 and 2019, Trump openly criticized the central bank for raising interest rates, which he argued stifled economic growth. 

Trump’s unconventional approach included publicly pressuring the Fed to lower rates and adopt a more dovish stance. While some saw this as a way to support his administration’s pro-growth agenda, others viewed it as a challenge to the Fed’s independence.

“The battle lines are already being drawn between the Fed and the White House, and investors should prepare for the fallout,” warns Nigel Green, CEO of deVere Group. 

“Trump’s policies are creating the perfect storm of inflationary pressures, and the Fed may have no choice but to act. This could trigger significant market volatility.”

The central bank has historically used interest rate hikes as a tool to combat inflation, but doing so in a period of fiscal stimulus could ‘choke growth and unsettle markets.”

Adding fuel to the fire, Trump’s protectionist trade policies have already driven up costs for businesses reliant on global supply chains. Tariffs on essential goods and materials have contributed to higher prices, which are now being passed on to consumers. This has amplified inflationary pressures, placing the Fed in an increasingly difficult position.

“The Fed may feel compelled to raise rates to rein in inflation, which has already proved to be remarkably sticky,” Nigel Green explains. 

“But higher interest rates would be expected to slow the economy, impact corporate profits, and shake investor confidence. This is a delicate balancing act with no easy solutions.” 

The stakes are high for investors preparing for this new economic reality. Asset classes that thrived in a lower-interest-rate environment may now face headwinds. Meanwhile, risk-sensitive currencies could experience heightened volatility as markets adjust to the Fed’s moves.

DeVere has urged clients to reassess their portfolios to ensure they are robust enough to withstand potential market disruptions.  

“A diversified strategy, incorporating inflation-hedging assets such as commodities, as well as a focus on high-quality equities and structured products will be key to managing this challenging environment.”

“Investors must be proactive, not reactive,” emphasized the deVere CEO. “Those who take decisive action now will be better positioned to capitalise on opportunities and mitigate risks in what promises to be a highly volatile period.”

“Emerging markets are typically the first to feel the impact of tighter US monetary policy,” Nigel Green noted. “Investors should remain vigilant about exposure to these regions and consider strategies to mitigate potential risks.” He concluded: “This is a time for vigilance and preparation.”