Buxton believes the EU referendum protest vote, which shocked financial markets on 24 June and that he himself discounted, “will probably be echoed in the US presidential election.” And that means we will see a big push toward fiscal stimulus, he said.
Both Clinton and Trump have made infrastructure spending a central component of their economic proposals in their bids for the White House. While Clinton’s plan entails spending $275bn over a five-year period, Trump has said he would spend more than double that amount on the nation’s decaying infrastructure.
The palpable disenfranchisement in the US, similarly evident in the UK and eurozone political narrative of the last year, is really about stagnant income and wage inequality, according to Buxton. Which is why he argues “it is now in politicians’ interest to generate wage inflation.”
“In the US, wages are already running at 3.6% per annum,” he said.
“Employment is still fairly low, although the labour force participation is still lower in the US than it is in the UK. If you start putting fiscal stimulus in the US on top of wages at 3.6%, you could very quickly get that picking up, but they would rather have inflation now than deflation. That all points to me to steeper yield curves."
And Buxton anticipates the UK government will also be more aggressive with its fiscal policy.
“The tectonic plates between monetary and fiscal policy are beginning to shift,” he said.
“Carney’s actions post-EU referendum have been completely counterproductive – he’s eroded bank profitability and helped undermine confidence in insurers’ ability to invest in assets that will match long-term liabilities. This is why I think looking three years out, you will see fiscal stimulus.”