According to Zhitong Finance APP, on January 7, Schroders Investment announced that it recently adjusted its forecast for the USA economy as it expects that the elected president Trump will implement policies that favor economic growth after taking office on January 20. However, Schroders Investment's expectations may be overly optimistic, as Trump might implement the previously promised radical policies.

Schroders Investment pointed out that compared to the scenario of a "Consumer recession" in the USA, the impact of global trade and supply chain disruptions on economic growth is more apparent. However, due to massive fiscal stimulus policies, coupled with retaliatory tariffs and depreciation of various currencies against the dollar, the downside risk of inflation is expected to be relatively limited.

Trump's radical policies will have different impacts on the economy of the USA and other Global regions. Weak trade, stagnation in investment decisions, and overall market confidence being undermined may drive most economies toward recession and lead to significant interest rate cuts, but this may result in stagflation in the USA.

Supply constraints will plunge the USA into stagflation.

In the scenario of radical policies, Trump may attempt to implement large-scale fiscal stimulus measures, but strong demand could exacerbate supply issues. Although some impacts are offset by a strong dollar and profit margins, significantly raising tariffs may increase Commodity inflation.

However, a greater threat to inflation may come from the crackdown on immigration and mass deportations, as this could lead to labor shortages, ultimately resulting in wage increases and inflation in the service sector.

Analysis from the Peterson Institute indicates that an additional 10% import tariff may cause a temporary increase of about one percentage point in inflation in the USA, but mass repatriation could lead to a rapid increase of more than three percentage points in inflation, taking years to return to normal.

Gross Domestic Product (GDP) growth may initially decline as a result and will only improve after stimulus measures are introduced before 2026. According to estimates from the Pew Research Center based on the American Community Survey, approximately 8.3 million American employees were illegal immigrants in 2022.

Schroders estimates that the damage to the supply side of the USA economy will reduce its potential growth rate to about 1.5% annually, meaning nominal growth will diverge from actual growth and trend toward inflation. While other central banks will be significantly cutting interest rates in 2025, stagflation will make it difficult for the Federal Reserve to ease monetary policy, leading to further strengthening of the dollar. This could provoke strong criticism from the Trump administration, possibly resulting in the replacement of Federal Reserve Chairman Powell by someone advocating for looser monetary policy when his term ends in May 2026.

Schroders believes that to stimulate economic growth, interest rates in the USA will fall to 3% before the end of 2026. This, combined with the twin deficits, will ultimately lead to a decline of the dollar.