### Stocks Rise Amid Economic Optimism But Bond Market Cautious on Trump's Policy Proposals

Recent market movements have highlighted a mixed reaction to President-elect Donald Trump's economic proposals. Investors are bullish on stocks, expecting growth from his promises of lower income taxes. However, bond prices have fallen due to fears that Trump's policies might swell the federal debt by trillions of dollars.

Trump has vowed to extend portions of the 2017 tax cuts and introduce further reductions in corporate taxes. Such measures could potentially stimulate economic growth, but at the cost of decreasing government revenues and increasing the federal deficit. A key part of his economic strategy is the imposition of higher tariffs on imported goods. While this could generate revenue, economists like Michael Pugliese from Wells Fargo caution that tariffs could also slow down economic growth by raising the prices of imported goods.

The Committee for a Responsible Federal Budget estimates that Trump's overall economic plans could add nearly $8 trillion to the federal debt over the next decade. This prospect has made the bond market wary, even as the stock market rises in anticipation of a business-friendly administration.

Higher federal debt would likely increase the government's borrowing costs, which are already substantial. The government currently spends more on interest payments than on defense or Medicare. Increased borrowing could lead to higher costs for consumers as well, potentially raising mortgage rates and making home purchases more costly. Following Trump's election victory, the yield on 10-year Treasurys saw a sharp increase, signaling heightened borrowing costs.

As the Federal Reserve meets to discuss interest rates, it faces new considerations. The central bank, which influences short-term borrowing costs like car loans and credit card rates, is expected to cut its benchmark interest rate slightly. However, the potential inflationary effects of Trump's tariffs and tax cuts may cause the Fed to adopt a more cautious stance in future rate decisions.

Inflation, a significant concern for many Americans, has been declining, but some of Trump's policies could reverse this trend. For instance, mass deportations of undocumented immigrants could disrupt sectors like agriculture, possibly leading to higher food prices.

The independence of the Federal Reserve remains a critical issue. While the Fed is designed to operate free from political influence, Trump has not hesitated to criticize the institution and its chairman, Jerome Powell. With Powell's term ending in about a year and a half, Trump could have the opportunity to appoint a successor more aligned with his economic views.