Last December, I argued that while some of US President Donald Trump’s policies would be stagflationary (reducing growth and raising inflation), such effects would ultimately be mitigated by four factors - market discipline, an independent US Federal Reserve, the president’s own advisers, and the Republicans’ thin majorities in Congress.

The script has played out as predicted. The reaction from stock, bond, credit, and currency markets forced Trump not only to back down from his “reciprocal” tariffs against most of America’s trading partners, but also to beg ...