Preparing for the new political landscape and its impact on global markets

What President Trump can change on his own depends on the issue. Through executive orders, he has significant authority over energy policy, foreign aid, immigration and rules for federal workers.

While Trump does have emergency power to implement tariffs immediately, that has never been done by a president before. The traditional process takes 6 to 12 months to give countries time to negotiate, which could fit Trump’s style better. “If there’s one thing Trump likes to do, it’s negotiate,” said Joe Cox, Head of U.S. Government Relations for CIBC.

In addition, congressional approval is needed for tax reform. Republicans have a comfortable 53 to 47-seat Senate majority. The House majority is 218 to 215, with two vacancies. The Republicans cannot afford many defections. That could make passing new laws challenging, given the disparate beliefs between members of Congress.

Congressional conflict popped up even before Trump became president. He wanted Congress to pass a federal budget and remove the debt ceiling in December, but it did not. Congress only temporarily extended government spending until March 2025.

At this point, there will likely be another considerable budget debate and the government could temporarily shut down again until there’s an agreement. Congress will also need to extend the debt ceiling later this year, or it will default on its debt obligations, something that has never happened before in U.S. history.

President Trump and Congress must then decide which tax provisions to extend from the Tax Cuts and Jobs Act of 2017, as many of these rules are set to expire by the end of 2025.

How this all settles will become clearer as the year progresses. “Ultimately, President Trump should be able to accomplish a lot of what he wants to do, but not everything, given the challenges around passing spending bills through Congress,” said Cox.

The recent election has also impacted U.S. interest market trends and expectations. Let’s start by looking at the past few years. Interest rates are influenced by the strength of the labor market and inflation. At the end of the pandemic, the labor market was extremely tight, with roughly two job openings per job seeker. Wages spiked and increased inflation. The Federal Reserve then raised interest rates the fastest in history to bring prices under control.

The Fed policies appear to have worked. In 2024, the labor market and wage gains returned to their historic, healthy levels. While inflation remained somewhat high, it fell much closer to the Fed’s target. As a result, the Fed cut interest rates several times in 2024 to support the labor market and was expected to do so again in 2025 and 2026. However, that may no longer be the case.

The economy and labor market are stronger than the Fed expected, halting progress on inflation. Trump’s trade and immigration policies could further increase inflation. The Fed has less room to cut rates. While the Fed announced it still expects future cuts, bond markets are pricing in higher long-term interest rates, showing they don’t think it’s possible.

At this point, there is a range of interest rate outcomes and it’s not something business owners should try to guess. Instead, they could use hedging strategies like interest rate swaps, participating collars, or participating swaps that would create more predictability for borrowing costs and some upside if rates move in a favorable direction.

“You’re covering yourself in both scenarios. It lets you focus on what you do best for your business, rather than staying up at night worrying about Trump’s tweets or the latest jobs report,” said Charlie Cashman, Direct, U.S. Interest Rates for CIBC.

FX markets also hold a fair amount of uncertainty. The U.S. dollar (USD) is overvalued compared to other major currencies by traditional metrics. While the USD did weaken in late 2024, the election reversed course.

“Tariff and trade risks, a steepening U.S. interest rate curve, and positive USD carry all propped up the USD,” explained Todd Liska, Executive Director of FX and Commodities at CIBC.

It’s hard to predict whether the recent trend higher in the USD will continue, but uncertainty over U.S. trade and tariff policy, the debt ceiling and fiscal policy have created an environment where FX volatility may remain high in the near future, creating a challenge for companies who operate internationally. Hedging solutions, which offer participation capability or enhanced rates, can help businesses manage their FX risk in a high two-way volatility environment.

Any new political administration brings changes and the need for new strategies. The second Trump presidency is no different. While business owners cannot and should not try to predict every change, they can prepare their companies to handle a range of outcomes in the interest rate and FX markets.

The CIBC Capital Markets team can help you understand the evolving political landscape and identify appropriate hedging strategies that fit your needs. For more information, please reach out to Jim Nickel at 412-500-7672 Opens your phone app..