The bullish response to US President Donald Trump’s first speech to a joint session of Congress on Tuesday failed to take into account the complicated nature of US policymaking, says Pimco.
Mr Trump employed less of the populist rhetoric that his previous speeches had used and the market’s reaction was “overwhelmingly favourable,” Pimco head of public policy Libby Cantrill said.
“President Trump veered away from the more protectionist and nationalistic tone of his inaugural address to instead deliver a more hopeful, conciliatory and unifying speech,” Ms Cantrill said.
“He sought to reassure nervous congressional Republicans that he is presidential, while at the same time, he tried to open the door with congressional Democrats on some shared objectives, such as paid family leave and infrastructure.”
Ms Cantrill cautioned that while the speech had been received positively by US markets, it did not alter the fact that policymaking in the US remains a complicated process.
“However strong the speech was on style and however bullish the reaction has been among certain risk markets, President Trump’s speech did not significantly change the stubborn facts about policymaking in Washington,” she said.
The two key policy items on Mr Trump’s agenda, reforming the tax code and overhauling the healthcare system, are “two of the most complex and time-consuming issues Congress can tackle”, Ms Cantrill said.
“Congress has not undertaken tax reform since 1986, when President Reagan had to use significant political capital to advance it and it still took him several years.
“Similarly, it took President Obama 14 months to pass the Affordable Care Act (Obamacare) at a time when he had bigger majorities in Congress and a higher approval rating than President Trump currently enjoys.”
Ms Cantrill said there was also “very little agreement” between congressional Republicans on how the two systems should be reformed.
“This is a long way of saying that while President Trump’s first speech in front of Congress was a success in many ways, it does not necessarily change the inherent difficulties of policymaking, especially in the complex areas of healthcare and tax reform.”
AMP Capital chief economist Shane Oliver said that US markets had "remained happy" as Mr Trump made "plenty of references to deregulation, corporate and personal tax cuts and infrastructure spending", but noted that little detail around his pro-business policies had been given.
"Interestingly the Trump Administration also sent to Congress its trade policy agenda which made reference to pursuing bilateral trade deals and renegotiating existing deals but does not signal the widespread application of tariffs, which adds confidence to the view that a trade war will be avoided," he said.