Trump's first 100 days: Five policies shaping markets in 2025

With an ambitious policy agenda, President Donald Trump's first 100 days in office will provide an early indication of his ability to sustain momentum in delivering on his promises. Wasting no time, Trump has unleashed a whirlwind of executive actions across a variety of policy focus areas, though many are likely to be challenged in court. Moreover, significant challenges and heightened uncertainty around the speed and scope of policy implementation remain. Investors should focus on five key policies that could have a significant impact on markets and the near-term economic outlook.

Trade: Protectionism is one of President Trump’s core beliefs, and, importantly, he can act on it unilaterally. Multiple conflicting reports have emerged about the potential implementation of universal tariffs and, with very little detail on tariff plans provided in the President’s inaugural address the severity and timing of tariffs is still fairly uncertain.

Taking proposals of a 25% tariff on Mexico and Canada, a 60% tariff on China, and a universal 10% tariff on other economies at face value, the estimated negative growth hit to each economy could be sizable, ranging from just 0.4% to as much as 9% of GDP, with economies that rely most on the U.S. for trade bearing the brunt. Yet, these estimates do not take retaliation, offsetting currency impacts, or concessions into consideration. For example, Mexico and Canada, where the U.S. makes up 20-30% of their total exports, could unveil preemptive measures in a bid to ward off the worst of these tariffs. Forecasting the growth impact of tariffs will be demanding for both policymakers and investors.

Trade will be the most important piece of Trump’s policy agenda as it could have a meaningful impact not just on global growth, but also on U.S. inflation. At a time when markets are already anticipating a shallow Fed rate-cutting cycle due to concerns around sticky inflation, tariffs could exacerbate upward pressure on longer-term interest rates and add to U.S. dollar appreciation, thereby challenging global risk-on sentiment.

Immigration and the border: Already having signed a series of executive orders aiming to fulfill his campaign promises, Trump is likely to move swiftly to implement stricter immigration measures to curb the inflow of migrants and close the border with Mexico. While there have also been discussions around mass deportations, such a policy will be faced with legal challenges and will require an act of Congress to appropriate the necessary funding to implement such a significant measure.

A broad crackdown on illegal workers would nevertheless be disruptive, likely leading to a reduction in employment in industries most reliant on immigrant labor: construction, accommodation and food services, and other low-skill professional services industries.

The net effect would invariably weigh on labor supply and potentially push wage costs higher, worsening service-sector induced sticky inflation. This may further muddy the inflation outlook and create a headache for the Federal Reserve as it continues to normalize rates.

Deregulation: In his inauguration, Trump instituted an immediate hard freeze on new regulations, with his administration likely to also move towards a broad deregulatory push. Beyond that, the regulatory and antitrust enforcement environment is also likely to soften considerably, boosting M&A activity across industries, except for Big Tech which largely retains Trump’s ire. Meanwhile, the financial industry is projected to be a big winner of Trump’s regulatory policies, and is poised to enjoy a powerful return to capital and earnings environment created by these tailwinds.

The administration is also better positioned to implement these goals, given a full slate of strategic and experienced appointments for political posts. This should make regulatory changes smoother and quicker, lowering the odds of lengthy court challenges, particularly around the rollback of many Biden-era regulations. The increased speed of execution is likely to create clarity for markets, supporting business sentiment and confidence in the near term.

Fed Independence: While Trump has said he will not try to replace Fed Chair Jerome Powell until his term ends, he has also argued that the president should have a say in interest rate policy. Whether this potentially manifests as someone on the Fed Board of Governors who will steer policy decisions based on presidential guidance is uncertain (and difficult) in the near term, given there will be no open board seat until January 2026. Alternatively, Trump may choose to nominate a new Fed Chair immediately, hoping this nominee overrides the Fed’s ability for “forward guidance.” While investors have largely dismissed these concerns, the fact that Scott Bessent, who first introduced the idea of creating a “Shadow Fed Chair,” is Trump’s nominee for Treasury Secretary, gives it a bit more weight—although his comments at the confirmation hearing supporting Fed independence is certainly reassuring.

Investors should nevertheless be cautious about increased jawboning from Trump or others, which may challenge the Fed’s independence and credibility. Any erosion of which would hamper the Fed’s ability to maintain financial stability and implement monetary policy, potentially leading to a rise in interest rate volatility or worse, a de-anchoring of inflation expectations.

Tax Cuts: The extension of the 2017 Trump tax cuts and an expanded tax package will likely be the most critical near-term legislative items for the new administration. However, given the narrow GOP congressional majority and increased concerns about fiscal sustainability, passing any bill will likely be an uphill battle.

The need to fund the government beyond March, increase the debt ceiling, and various nomination hearings for Trump personnel will also create significant distractions for lawmakers. This full legislative agenda means any tangible progress on tax cuts is unlikely until closer to year-end when the 2017 Trump tax cuts are scheduled to expire. Given the optimism around additional fiscal easing, investors may want to temper any overly bullish expectations on these tax cuts, particularly in the near term.

Investor Implications: President Trump’s first 100 days in office will provide valuable insights into his administration's ability to maintain momentum and deliver on its promises. However, uncertainty surrounding the administration’s policies will likely remain a defining theme in 2025, particularly regarding the scale and scope of its objectives. Compounding these challenges is the backdrop of elevated market vulnerabilities, with stretched valuations in both equity and credit markets and growing concerns over inflation driving upward pressure on interest rates. In this environment, government policy actions could play an outsized role in shaping market dynamics this year.

Principal Asset Management                                                                                                                  Double byline: Christian Floro, Market Strategist at Principal Asset Management