The upset presidential election victory of Donald J. Trump and the Republican hold of the House of Representatives and the Senate signal major changes ahead in both the federal government’s approach to growth and the Federal Reserve’s approach to monetary policy. Most evident will be a return of supply-side tax cuts, large operating fiscal deficits, and a move back toward more traditional monetary policies that, over time, should lead to higher short and long-term interest rates.

Below we outline our views on the implications of a Trump presidency for economic growth, taxes and infrastructure, central bank policy and interest rates and trade.

Economic Growth

We anticipate that the Trump administration will attempt to achieve the economic equivalence of a strategic breakout with respect to the pace of economic growth. It will also seek significant reform of Dodd-Frank, which would be a boost for Wall Street, and move to inject private competition into the health care system. Because the GOP does not have veto-proof majority, the reform of regulation governing finance and health care will be quite challenging and difficult to obtain.

While there will likely be a faster pace of growth in the near term, uncertainty about the role and status of the U.S. in the global economy may combine to create longer-term issues that, ironically, act as a drag on growth.

Taxes and infrastructure

From a purely economic point of view it will be difficult to lift the long term growth trend much above 1.5 percent without significant tax reform and productivity-enhancing changes related to tax investments and improving the condition of the national infrastructure. Given the major demographic challenges associated with the aging of the baby boomers, and the gradual entry of millennials into the workforce, the underlying conditions of the post-Great Recession economy are not conducive to a quicker pace of growth unless there is major tax and entitlement reform.

With Trump’s election, forward looking managers and investors should anticipate large tax cuts, deregulation and a likely return of greater risk-taking by financial firms in an attempt to stoke a greater pace of growth in the near-term.

In our estimation, based on visits to policymakers in Washington and on Capitol Hill, the order of operations for the first two years of the Trump Administration will likely proceed in the following fashion:

First, a move to engage on comprehensive tax reform will likely be one of the primary orders of business in January 2017. We expect an attempt to craft a deal that would revolve around lower individual and business tax rates along with an end to corporate tax inversions. Under these conditions, an attempt to lower individual tax rates on the margin likely around the framework set out in the House Republican blueprint released in June of this year of 12, 25 and 33 percent would be a workable framework to put in place the most significant tax reform since 1986. We anticipate that this will take up much of first year of the administration and congressional calendar.

At the heart of Trump’s tax plan is the intention to reduce taxes on pass through entitles to 15 percent, which would decisively favor the middle market which accounts for 40 percent of GDP and employs one-third the labor force. In our estimation given the fact that pass through entities account for roughly 95 percent of all firms in the economy, that this would be quite popular among the general public and Trump’s rust belt working class coalition.

Second, we think the opportunity for a bipartisan bill on a multi-year infrastructure project is ripe for passage. The glue that would hold this together would likely be parallel legislation that would seek to tax the $2.6 trillion in corporate profits being held abroad.  There is growing realization in both political parties that the infrastructure around the country has been allowed to slip into such disrepair that it has become something of a national embarrassment.

An infrastructure project probably won’t just focus on roads, bridges, ports and canals. It will likely be much broader and encompass sewage, water, broadband, hardening the energy infrastructure and cybersecurity. In fact, we suspect that the infrastructure bill will be sold as necessary for national security given the recent wave of cyber strikes on private firms and the Russian-led hack of the Democratic National Committee.

It is important to note that a robust infrastructure is not an economic panacea. It is a long-run productivity-enhancing policy that is more of a legacy issue, as opposed to something that will jump start economic activity in the near-term.

If there is no tax reform, then growth will remain decisively in the sub two-percent range. A quicker pace of growth won’t return until the demographic bulge from the millennials and generation Y take power and reform the country and economy to be better aligned with their tastes, preferences and interests.

Central Bank Policy

The initial financial shock associated with the Trump’s triumph is quickly waning. Investors in the U.S. have been conditioned over the past few years to buy on dips and using them as an opportunity to bolster quarterly returns, often around, accommodative policy out of the Fed. While, that is certainly the case in the near term, there is likely to be volatility ahead as markets begin to price in what will likely be major upcoming changes in personnel at the central bank.

The era of unorthodox monetary policy will slowly come to an end. It is almost certain that Janet Yellen will not return for a second term at the Fed, and that Trump will move to fill the two open positions on the board with allies who favor a quicker pace of rate normalization in the near-term than the dovish contingent at the Fed currently has in place.

Interest Rates

Interest rates are likely moving higher due to the return of fiscal policy via major tax cuts, which are certain to lead to larger annual operating deficits. The logic of the supply side economics that will be at the heart of Trump’s policy framework is a willingness to accept large increases in the federal deficit in return for greater growth. If Trump enacts his tax policies, growth will likely follow in the near term. During the medium term, however, due to the probability of very large operating deficits, investors will likely begin to push up long-term rates to levels that are not conducive to growth.

Trade

In our estimation, the TPP represents a once-in-a-lifetime opportunity for the middle market to be given preference in a multilateral trade treaty. It would not be any surprise if the TPP quickly becomes the last major policy debate of the outgoing Obama administration.  Given the outcome of the election, the upcoming lame duck session of congress represents likely the last opportunity for a number of years to pass multilateral trade policies that decisively favor the middle market.

It is here where the greatest risks lie. It is quite clear that Trump intends to slow down the pace of economic integration between the U.S. and its trade partners. More than half of all U.S. trade is with its North American partners, and is an important source of growth in the economy. To the extent that Trump either intends to, or can, renegotiate portions of NAFTA will define what appears to be neo-mercantilist policies that the new administration may adopt.

Because of the relative lack of substantial policy preferences set out by the Trump campaign, at the current time it’s difficult to quantify the overall economic impact from what policies do emerge. It is safe to say that it is best to avoid starting trade wars, which are always popular at the outset but end up harming everyone over the long term.