Florence Pisani: «Donald Trump’s Policies Won’t Solve the Problem»

Florence Pisani: «Donald Trump’s Policies Won’t Solve the Problem»

The US Federal Reserve is seen as a pillar of stability in uncertain times. Shouldn’t it have applied more pressure for more reasonable fiscal policy?

No, that’s not its mandate. The Federal Reserve (Fed) is doing an excellent job within its remit – inflation and employment. It has achieved a perfect soft landing for the US economy. In light of fiscal uncertainty, it’s entirely rational for Fed Chair Jerome Powell to wait and leave interest rates unchanged.

Would it really be so bad if Trump succeeded in curbing the Fed’s independence?

If the Fed lost its independence, we could see a situation where the central bank is forced to buy large quantities of government bonds to push real interest rates deep into negative territory and keep them there. That would usher in an era of «financial repression».

Debt metrics might improve, but inflation would spike, and trust in the dollar and the global financial system would erode – a very dangerous scenario. The pressing question is: Who will replace Powell when his term ends in May 2026?

«Financial repression would erode trust in the dollar and the global financial system – a very dangerous scenario.»

Industrial policy is back in fashion – first in China, then the US, and now increasingly in the EU. But experience with industrial policy has been mixed.

It’s time for Europe to pursue its own industrial policy. Our continent has little to show in terms of high tech and AI. The Draghi Report highlighted the massive backlog.

On the other hand, China has successfully reduced dependencies and made supply chains more resilient through its policies. The point isn’t to produce everything domestically, but to secure strategically important sectors.

EU countries especially want to ramp up defense spending. The aim is to strengthen domestic arms industries and raise long-term economic growth. Is that realistic?

Just buying weapons isn’t very productive. But investing in R&D, AI, and cybersecurity makes sense given today’s threat landscape, and it could boost growth potential.

The key is tight government cooperation and well-coordinated projects; otherwise, resources will be wasted. At the EU level, there is one beacon of successful industrial policy: Airbus. Germany’s major infrastructure package will also provide a significant positive impulse.

«China shows that cleverly executed industrial policy can succeed.»

According to standard economic theory, we shouldn’t need industrial policy. If the framework – legal certainty, low taxes, price stability – is right, shouldn’t markets do the rest?

But in practice, we’ve learned that some intervention and planning are necessary. Leaving everything entirely to the market clearly hasn’t worked in the US. At the very least, we need incentives for education, IT, and AI. As mentioned, China shows that cleverly executed industrial policy can work.

But China doesn’t look like such a shining example right now, does it?

True, the country has several problems – overinvestment, wasted savings, weak consumption, a troubled real estate market, deflationary tendencies, and so on. From an economic standpoint, the government should stimulate consumption – but it’s pursuing a political agenda. Still, in terms of supply chains and technology, China’s industrial policy has worked well.

Florence Pisani has worked at Candriam since 2002. She became Global Head of Economic Research in 2016 and is now Chief Economist at the asset manager. She has authored several non-fiction books on public debt, economic crises, and the interplay between the real economy and the financial system. Her most well-known work is likely «Global Imbalances and the Collapse of Globalised Finance» (2010), co-written with her predecessor Anton Brender, who retired at the end of 2024.