Market forecast: “a huge noise of aspiration” of foreign capital flowing in

Wall Street is booming as an expected Republican election victory raises hopes of lower taxes and deregulation, making U.S. financial markets more attractive to the rest of the world, an economist at fame.

In an interview with Bloomberg TV on Friday, Mohamed El-Erian, chief economic advisor at Allianz, was asked whether investors should expect a positive growth shock accompanied by rising inflation.

The direction of travel is clear: more growth, slightly higher inflation, a higher need for public sector borrowing and a huge noise of aspiration where a lot of foreign capital will end up in the United States, he said. answered.

The extent of these trends will become more evident when the policies of the new Trump administration become clearer and when the people who will implement them become known, El-Erian added.

Just days after the presidential election, discussions about possible Cabinet appointments are already intensifying. On Friday, the Financial Times reported that Robert Lighthizer, who served as U.S. Trade Representative during Trump's first term, had been asked to serve in the role again.

At the same time, the Treasury secretary job is likely to be offered to a financier, the FT added, with hedge fund managers Scott Bessent and John Paulson seen as possibilities.

Meanwhile, the rest of the world may find it harder to cope with a period of faster growth and higher inflation, which would strengthen the Americas' relative advantage, El-Erian said.

This is a period in which US dominance over the global system will increase, both for positive and negative short-term reasons, he explained. The rest of the world simply cannot build enough pipelines around the United States. They try and they do it, but these pipes are very small compared to the size of the United States.

Indeed, despite fears that Trump's tax cuts, tariffs and immigration crackdown would be inflationary and worsen deficits, bond yields have come back down after soaring immediately after the election.

El-Erian explained that this is because US bonds have become more attractive compared to those of other advanced economies.

Continued demand for Treasuries would help the federal government finance what is expected to be a debt explosion under another Trump presidency.

Before the election, the nonpartisan Committee for a Responsible Federal Budget estimated that its policies could add $7.5 trillion to the debt, or as much as $15.2 trillion.

But if investors, especially bond advocates, balk at the huge volumes of debt being auctioned off by the Treasury Department, they could drive up yields and increase borrowing costs in key segments of the economy, like mortgage rates.

However, in an opinion piece published Tuesday in the Wall Street Journal, Larry Fink, chairman and CEO of BlackRock, said faster economic growth would help make U.S. debt more manageable.

If GDP grows by an average of 3% in real terms over the next five years, the country's debt-to-GDP ratio would remain roughly stable at a high but reasonable level, he wrote.

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