Now that the dust has settled on the latest Fed rate hike, it’s timely to look slightly afar to see what may happen. And this time, unlike December 2015 when the last rate hike happened, the future looks distinctly interesting. Because of Trump.

You see, Trump has pledged to jack up economic growth to an annual 4 per cent, a big jump from the 2 per cent growth that the US economy has been recording of late. He plans to double growth mainly by slashing tax rates, cutting back on regulation and spending on infrastructure. Trump is all for a massive fiscal stimulus.

There is no love lost between Janet Yellen, the chairperson of the Federal Reserve, and the President-elect. Trump has publicly criticised Yellen in the past for keeping rates low to help his rival and has suggested low rates were creating a “false economy.”

What Yellen thinks of Trump was a secret. Until now. Because if you carefully browse the transcript of Yellen’s press conference on 16 December, she wasn’t exactly shy about her views on Trumponomics.

Let’s take fiscal policy. She did call for fiscal stimulus when the unemployment rate was substantially higher than it is now. But with unemployment rates at an all-time low of 4.6 per cent and a solid labour market, she thinks that the degree of slack has diminished. In her opinion, fiscal policy is not obviously needed to provide stimulus to get back to full employment.

Trump and Yellen may also differ on taxes. Yellen believes that productivity growth is the issue and that any policy that boosts productivity (education, training, workforce development, innovation, new business set up etc.) is welcome. And taxes? To quote her, “tax policies can have that effect.”

Not exactly a thumping vote of confidence for slashing tax rates.

Regulation is another potential battlefield. Trump wants less regulation. Yellen wants, largely, status quo. She advocates going easy on small, regional banks and tightening rules for global mega banks, like boosting capital requirements. Yellen also expressed her strong support for the Dodd Frank Act. This piece of legislation expanded the Fed’s authority over banks, giving it the ability to break up those considered “too big to fail” and requiring banks to run stress tests. Alongside the stress tests, the largest banks must also provide “living wills” to show how they would wind down operations should they fail, without needing help from the federal government.

But all this is beside the point. The real reasons for tepid growth in the US are not the oft quoted villains like low oil prices, Brexit, China, too much debt etc. The fundamental reasons are an ageing population, plummeting productivity and lower labour participation rates (on the supply side) and falling demand because of less consumption (on the demand side). Trumponomics, epically lower tax rates and low regulation, may at best boost productivity, depending on the nature, extent and timing. But it may do little or nothing for the other reasons for lacklustre growth.

And the impact of the rate hike on the GCC? The current rate hike is small — only 0.25 per cent — to have any effect. But if in 2017 and beyond Trump gets his tax and spending agenda through Congress, the Fed will have to move faster and the GCC will have to respond as most GCC currencies are pegged to the dollar and hence GCC central banks have to follow the Fed’s interest rate policy. And that is bad news.

Let’s go by major sectors, starting with banking. GCC banks are still reeling from bad loans, loan loss provisions and drying liquidity. Rate hikes means higher rates on loans. While banks usually do well on a higher spread between deposit and loan rates, it may be different this time. GCC economies (and companies) are staggering under the impact of lower oil prices, companies are suffering and lending may fall post rate hikes, slowing the economy even further.

Then there is retail and tourism. The dirham will appreciate against the pound and the euro, making the GCC even more expensive for tourists. As it is, these sectors in Dubai have been hit by falling Russian and British visitors.

The property sector may also be impacted, more so since many buyers are located overseas.

But it’s not all bad news. With Trump in power, the often dull world of politics, finance and trade will be infinitely more interesting, especially after eight years of a yawn-inducing Obama. And in these tight times, free entertainment should be welcomed.

— Binod Shankar is the Managing Director of Genesis Institute, a financial training company