Central banks have proved themselves extremely capable of containing all manner of economic shocks over the past decade, but the election of Donald Trump might prove to be a different story.
The new governor of the Reserve Bank of Australia, Philip Lowe, said in his first public appearance in his new role that he suspected the impact on markets would not be “as benign an event” as the shock result in the Brexit referendum was in June.
While markets initially sold off broadly after British voters voted to leave the EU, months later the main impact has been limited to a significant devaluation in sterling and an uncertain outlook for parts of the UK economy.
“We thought about this in Brexit but that turned out to be a fairly benign event in markets,” Lowe said in response to an audience question at an event in Sydney today. “The possible election of president Trump I suspect wouldn’t be as benign an event, but we don’t have a Trump plan, what we do is have a generic response plan to a whole range of shocks.”
He also said that going through “the list of things that make we worry about the global economy … right at the top of that list is the shift towards protectionism”, one of the core themes of Trump’s economic plan which encompasses an “America-First” trade policy.