In the immediate aftermath of Trump’s victory, markets reacted predictably with higher government bond yields, stronger stocks and a stronger dollar, reminiscent of the reaction after the 2016 election.

By Thursday morning (AEDT), government bond yields continued to rise as traders cut expectations of significant rate cuts by the Federal Reserve next year.

The yield on the 10-year Treasury note rose to 4.479 percent, its highest since July.

Based on trends during Trump's previous term, 10-year yields are forecast to rise another 100 basis points over the next year or two, potentially reaching a nominal yield of 5.5 percent, as the bond market prepares for stronger growth and rising inflation.

As markets react, Australian economists are bracing for an impact as Trump's return to the White House looms. The potential for new tariffs is likely to squeeze Australia's economy through China, but aside from trade, it is Trump's inflationary policies that are causing concern in Australia.

After the election, AMP's Shane Oliver warned that while Trump's tax cuts and deregulation could boost US productivity by boosting investment, his mix of policies – including higher tariffs, reduced immigration and potential intervention by the Federal Reserve – could in eventually causing inflation and limiting economic growth.

"Simply put, Trump's policies point to upward pressure on U.S. bond yields -- through higher budget deficits and higher inflation and fewer Fed rate cuts," Oliver said. "There is also a risk that if Trump's policies boost inflation in the US, there could be a global flow, including to Australia, leading to higher RBA interest rates than the rest."

Similarly, analysis by GSFM investment specialist Stephen Miller points to several potential inflationary pressures in the US, driven mainly by changes in the economy and politics. With US bond yields rising on Thursday due to factors such as the budget deficit and inflationary policies expected under the Trump 2.0 administration, there are potential global repercussions, according to market strategist GSFM.

“Trump 2.0 has set out to launch high-grade trade weaponization that will fuel inflation through aggressive tariffs. This will inevitably lead to a higher spike in inflation,” he said.

Like Oliver, he agreed that Trump's plan to exert more influence over the Fed's decision-making process is not something that bond investors are likely to take kindly to.

"Weakening the Fed's independence by making the key interest rate a more 'political' device will inevitably lead to higher inflation, inflation expectations, and higher medium- and long-term bond yields," Miller said.

But speaking on a podcast episode of Relative Return Unplugged last week, Miller also raised the possibility that Trump's tariffs could hit Australia so hard that the expected burst of inflation may not materialize.

"Let's say the US aggressively increases tariffs and then China aggressively increases tariffs ... a country like Australia that is heavily tied to the international trading system, that's catastrophic for us." That could mean the economy here is getting so weak that we're not getting that burst of inflation,” Miller said.

"It could mean that globally we don't get this burst of inflation." But the reason we don't get this burst of inflation is because everyone is happy with the tariffs and it has disastrous consequences for global economic activity.

Gregory Peters, co-chief investment officer of PGIM Fixed Income, said the inflationary impact depends on Trump's approach to tariffs, warning that his presidency could lead to stagflation.

Namely, while maximum tariffs would cause a stagflationary shock, minimum tariffs would reduce growth and increase inflation in the first year of implementation. In the latter scenario, however, Peters expects some kind of fiscal response from a unity government.

“A full extension of the TCJA (Tax Cuts and Jobs Act) and another reduction in the corporate tax rate, possibly to 15 percent, provides modest growth potential. We would then expect a larger fiscal response in 2026 as the negative growth from tariffs becomes apparent and the inflation shock begins to fade,” Peters said.

"During a Trump 2.0 presidency, there is likely to be a negative shock to growth and upward inflation in response to the tariffs, the level of which remains unclear," he added.

Sebastian Mullins, head of multi-asset and fixed income at Schroders, pointed to market reactions following Trump's election victory, noting that they clearly predicted his policies would be largely inflationary.

Schroders, he said, sees the Trump administration as increasing the risk of inflation rising later in 2025. because of its trade and fiscal policy. Namely, the head of multi-asset and fixed income said Trump's pledge to further cut taxes and regulations while raising tariffs and curbing immigration would be "weakening for the US economy."

"Inflation should also prove firmer, reinforcing our belief that the Federal Reserve will not provide as much easing as it has indicated it will," Mullins said. "Given our view that the neutral rate is around 3.50, Trump's return to the White House likely means the Fed should keep rates above that level."

While Schroders continues to see a low risk of a US recession and maintains its view of a soft or even no landing, Mullins noted that inflation remains the biggest risk next year. However, "We do not expect a return to 8-9 percent, but instead, a more 'normal' environment last seen before the 2008 financial crisis."