RBNZ Says Trump Policies Present ‘Higher Inflation Package’

(Bloomberg) -- Central banks globally should anticipate extra challenges as Donald Trump returns to the White House, Reserve Bank of New Zealand officials said.

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“He has talked about 10 to 20% tariffs across the board and higher tariffs still with China, lower business and personal taxes and less regulation, less red tape,” RBNZ Deputy Governor Christian Hawkesby told a parliament committee Thursday in Wellington. “From a macro-economic point of view, we think that that’s on the margin a higher inflation package than the alternative but one that’s very much manageable in the world of operationally independent central banks.”

Trump’s promised levies on US imports could upend global trade, while tax cuts would further stretch the federal budget and migrant deportations could shrink the pool of cheap labor. That poses two main risks — slower economic expansion around the world and faster inflation at home that would make the Federal Reserve less willing to lower interest rates.

Hawkesby said the central case he outlined is manageable but “there are risk scenarios around that, and that relies on whether there’s a tit-for-tat escalation, who does what in response and whether things broaden out from there.”

RBNZ Governor Adrian Orr told the committee that getting on top of inflation was a challenge for most central banks, but his takeaway from last month’s IMF World Bank meetings in Washington was that the story “is unfolding as anticipated, touch wood.”

Trump’s election “might be a slight backward step on the challenge to the US Fed,” he said.

Orr said there is a trend away from global trade toward protectionism and an industrial policy that he described as “build a wall and then a factory behind it rather than buy it from somewhere else.”

“We’ve passed and may never see again in our lifetimes peak global trade,” he said. “Industrial policy is now the topic of all major economies around the world.”

Orr said climate change is the most significant challenge to the globe at present. Trump’s election “probably wasn’t a vote for ongoing climate management,” he said.

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