Senior central bank reporter: To win the election, Trump is using "three major levers" to stimulate the economy, and it is "very likely to succeed" this year, but

Trump is taking unprecedented measures to get the U.S. economy "running at full speed," and it is highly likely to succeed this year.

On January 14, senior reporter Greg Ip wrote in The Wall Street Journal that the three levers Washington uses to control economic growth—fiscal policy, monetary policy, and credit policy—have never historically been aligned, but this year they are all shifting towards stimulus, reflecting Trump's and congressional Republicans' focus on accelerating economic growth, with the goal of winning in the midterm elections in November.

According to Greg Ip's analysis, in fiscal terms, the tax law signed by Trump in July is injecting nearly $200 billion into the economy; in the credit sector, regulators are relaxing bank capital requirements and lowering merger thresholds; in monetary policy, Trump is taking extreme measures to try to control the Federal Reserve, demanding that the next chair significantly cut interest rates. Analysts expect these measures to be enough to boost economic growth by up to 0.5 percentage points in the first half of this year.

The article also points out that this strategy is sacrificing other goals: controlling debt, the independence of the Federal Reserve, and long-term financial stability. Rising debt will make future generations poorer and could trigger a debt crisis, while loosening credit regulations could lead to a market crash, and central banks obeying presidential goals usually end in disaster. However, these consequences will manifest in the future. This year, investors are facing a rare situation of coordinated policy stimulus.

A Major Shift in Fiscal Policy: From Tightening to Injecting $200 Billion

The article states that the U.S. economy is expected to perform strongly in 2025, with real GDP growth of about 2.5%, continuing the robust pace of the previous two years. The main drivers are investments in artificial intelligence and data centers, as well as consumer spending boosted by a strong stock market.

Notably, this performance is achieved against a backdrop of tightening fiscal policy—Trump's tariff policies raised about $200 billion, most of which is borne by American businesses and households.

This year is entirely different. The average tariff rate will not rise, and if the Supreme Court rules that some tariffs are illegal, rates may even decrease.

At the same time, the tax and spending law signed by Trump in July provides new or expanded tax deductions, particularly for state and local taxes, overtime pay, tips, and seniors.

Although these tax cuts are retroactive to early 2025, the withholding tax tables were only adjusted at the beginning of this year. Piper Sandler policy analyst Donald Schneider noted that this will create a dual stimulus effect: many workers will see higher take-home pay this month and receive refunds for last year's taxes when filing.

He expects this will inject nearly $200 billion into the economy, enough to boost the annualized growth rate in the first half of the year by up to 0.5 percentage points. The provision allowing businesses to fully deduct capital expenditures will also drive stronger investment.

Credit Gates Open: From Strict Regulation to Relaxed Restrictions

The article points out that the government's influence on risk appetite has both psychological and rational aspects. Loose regulations once fueled the subprime mortgage crisis that led to the real estate bubble in the early 2000sAfter the financial crisis, new regulations required banks to hold more capital to cope with loan losses and to hold cash to address capital outflows, which limited their lending capacity.

Since Trump took office, regulators have begun to roll back these restrictions. Last year, a set of rules was relaxed, allowing large banks to hold more U.S. Treasury bonds. Capital requirements are about to be eased, barriers to bank mergers are being lowered, and the enforcement of consumer finance laws has also weakened. All of these will stimulate lending.

Trump has just ordered Fannie Mae and Freddie Mac to purchase $200 billion in mortgage-backed securities. These two quasi-private companies guarantee trillions of dollars in residential mortgages and suffered massive losses when the real estate bubble burst, leading to their takeover by the Treasury in 2008.

According to UBS estimates, this move could lower mortgage rates by 0.1 to 0.25 percentage points, boosting homebuying demand.

Federal Reserve Shift: From "Neutral" to "Stimulative"

According to an article in The Wall Street Journal, former Federal Reserve Chairman William McChesney Martin famously said: The job of the Federal Reserve is to take away the punch bowl just when the party is getting good, meaning that when economic growth is strong and financial speculation is rampant, the Federal Reserve will raise interest rates to curb inflation.

Trump detests this. He believes that the Federal Reserve Chairman should cooperate rather than oppose his other economic policies. "What I want is for rates to go down when the market is doing well because our country is getting stronger," he said on Tuesday.

To this end, Trump has taken extreme measures to try to control the Federal Reserve. He attempted to fire a board member on the grounds of alleged false statements regarding mortgages, and now he is allowing the Justice Department to launch a criminal investigation into Federal Reserve Chairman Powell regarding the costs of headquarters renovations.

Federal Reserve officials currently expect that this year, interest rates will be lowered by 0.25 percentage points from the current range of 3.5% to 3.75%, bringing rates roughly to a "neutral" level, neither restricting nor stimulating growth.

But Trump does not want neutrality; he wants stimulative policies and insists that the next chairman significantly cut interest rates. His two main candidates—White House economic advisor Hassett and former Federal Reserve board member Warsh—have both shown dovish tendencies.

While they may not lower rates to 1% as Trump wishes, the market expects that due to favorable inflation news (the impact of tariffs fading, falling oil prices, and slowing housing inflation), and moderate growth in labor costs, the new Federal Reserve leadership will have reason to adopt more aggressive easing policies.

Long-Term Costs Delayed

The article concludes that the short-term effects of fully opening the fiscal, monetary, and credit floodgates are evident: the economy will experience rapid growth. However, the reason this strategy is historically rare is that it comes with heavy long-term consequences.

The current policy path has not slowed debt growth; rather, it may lead to the debt-to-GDP ratio exceeding 100%, making future generations poorer and increasing the risk of a debt crisis.

Easing credit and regulation in the context of already high valuations could ultimately lead to a market crash.

Furthermore, forcing central banks to subordinate themselves to the political goals of the president usually ends poorlyThe article points out that despite this, as the Federal Reserve shifts to easing, the bond market "vigilantes" are unlikely to punish the budget deficit this year, and a market crash will not happen immediately. The main theme this year is a policy-driven boom, and the consequences will be settled later