WASHINGTON – “Financial volatility could rise sharply” in the United States if President Donald Trump’s program of tax cuts and undoing financial reform encourages a return to the reckless practices that led to the 2008 global crisis, the International Monetary Fund said Wednesday.
“In the United States, if the anticipated tax reforms and deregulation deliver paths for growth and debt that are less benign than expected, risk premiums and volatility could rise sharply,” the IMF said in its Global Financial Stability Report.
Stock markets have thrived on expectations that Trump’s plan to slash corporate taxes, scale back financial regulation, and spend money on infrastructure will benefit the economy, according to the report.
Tobias Adrian, director of the IMF’s Monetary and Capital Markets Department, told reporters that market confidence is “based upon a benign view” of the likely effects of the Trump program.
Regarding pressures for the rollback of financial regulations enacted after 2008, the report said that while there is room to “fine-tune” the new framework, the US should avoid a “wholesale dilution” of reforms such as stronger bank capital requirements.
This is particularly important at a time when the balance sheets of US corporations are deteriorating as a result of what Tobias described as “historically high levels” of debt stimulated by low interest rates over many years.
Trump has been a critic of the Dodd-Frank Act, signed into law by predecessor Barack Obama, which increased supervision of banking and financial activities and imposed more stringent capital standards on US banks.