I wholeheartedly believe Donald Trump and the Republican majority will enact a sweeping package of tax cuts, at least a modest infrastructure spending program, and hopefully some radical deregulation. It won’t be exactly what any of us want, but they’ll make some good moves that should help the economy—which is badly in need of some help.

But here’s the rub. We don’t yet know exactly what it will all look like. Right now, we’re hearing a lot of ideas and speculation.

Donald Trump Elites
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Donald Trump

The details matter

Tax reductions are generally good, but they can have more or less growth impact depending how they are constructed. There’s also the question of how they will affect the debt. That problem isn’t going away. The same with spending and deregulation.

There’s a lot we don’t know, and right now, what we do have is mostly guesswork. This week’s rate hike was probably going to happen no matter how the election turned out. They told us to expect more hikes next year, totaling 0.75%. They have plenty of time to react to whatever fiscal policy changes make it to the president’s desk.

The same applies to their morose GDP projections. Do they think the coming changes will have no effect? Probably not. But they don’t know exactly what the changes will be, which makes their impact hard to assess. Plus, while I don’t agree with Former Treasury Secretary Larry Summers on secular stagnation, I do agree that long-term forces are causing a generally slower-growth environment.

We’ll get a new rate hike forecast at the mid-March Federal Open Market Committee (FOMC) meeting. By then, we should have a much better sense of fiscal policy changes. I suspect the impact will be visible in that meeting’s projections and certainly by the meeting in June.

Trump could completely change the face of the Fed

The stars have lined up to give an “outsider” president a shot at completely remaking the Federal Reserve. Washington is full of agencies that need a shake-up, of course. I expect many will get one. None need it more than the Fed.

That being said, if he gets the number of appointments that I think are likely, that means he “owns” the Fed, in terms of having to take responsibility for its actions.

The problem is that monetary policy is unlikely to be all that effective in the future. It is questionable how effective it has been in the recent past, aside from driving up asset prices, which hasn’t done much for Middle America.

The bulk of the current FOMC members believe that GDP growth will remain below 2%. There is reason to think that 1.5% is closer to the real potential. For all intents and purposes, that’s stall speed. A crisis in Europe, and President Trump has a recession on his hands.

We have absolutely no idea how things are going to unfold

To an agonizingly great degree, the incoming US administration is hostage to the German election cycle, which means that Merkel cannot condone bailing out Italian banks until after her election in the fourth quarter of next year. Italy is too big to bail out, too big to save. Sometimes, bond markets can be very inconvenient.

A breakup of the euro practically guarantees a deep recession in Germany—and I mean really deep. A recession in Europe would drag the world down—including a debt-driven China.

What happens when the currencies of the world start falling significantly against the dollar? Currency manipulation or the real world? What does a Trump Treasury Department do in response? Labeling everybody as currency manipulators won’t work very well. Punitive tariffs are counterproductive.

Do we actually respond by monetizing the federal debt (at least the debt held in the US) in order to reduce the value of the dollar and keep from completely devastating the potential positive aspects of a new corporate income tax policy?

Dear gods, we are moving into a world where we have absolutely no idea how things are going to unfold. The uncertainty gauge is pegging into the far-right red zone.

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