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Global conditions this year are anything but traditional, so it seemed appropriate to wait until U.S. President Donald Trump settled into the White House to weigh in on some of the main surprises that might shake up the world economy and financial markets on his watch.starters, Trump's economic policies are likely to produce much higher U.S. interest rates and inflation than financial markets expect. Trump's election has almost certainly ended the 35-year trend of disinflation and declining rates that began in 1981, and that has been the dominant influence on economic conditions and asset prices worldwide. As Trump launches his policies, however, the Fed is likely to tighten its monetary policy more than it had planned before the inauguration, not less, as the markets still expect. More important, as Trump's policies boost both real economic activity and inflation, long-term interest rates, which influence the world economy more than the overnight rates set by central banks, are likely to rise steeply.As a result, yields on 10-year U.S. bonds could jump from 2.5 percent to 3.5 percent or more in the year ahead – and ultimately much higher.The U.S. dollar could strengthen much further, especially against emerging-market currencies, despite Trump's stated desire to boost U.S. exports.
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