If President Trump wins a second term, the overall impact would be “positive for the domestic economy and financial markets,” according to a new report from Capital Economics.

“With monetary and fiscal policies remaining loose, or potentially being eased further, the economy is likely to continue running hot,” the report noted. “That is clearly a positive backdrop for financial markets.”

View photos President Donald Trump disembarks from Air Force One upon arrival at Miami International Airport in Miami, Florida, January 23, 2020, as he travels to speak at the Republican National Committee Winter Meeting. (Photo by SAUL LOEB/AFP via Getty Images) More

Capital Economics says the 2020 election could be a “nail biter,” given the president’s low but stable approval rating. According to FiveThirtyEight, only 42% of the country approves of a Trump presidency. Since he was elected, his approval numbers have never risen above 45%. But the current strength of the economy could prove to be a tailwind to the Trump campaign.

The current unemployment rate of 3.5% is close to a 50-year low, and the economy continues its record expansion.

The positives

Under Trump, Capital Economics writes, there might be a push to make the FOMC more dovish, as Fed Chair Jay Powell’s term ends in early 2022. Even with the Federal Reserve signaling that it will keep rates low for the time being, it’s likely the president will nominate more doves to the FOMC. And while the Senate could prevent highly partisan nominees from being confirmed (as seemed clear with previous potential nominees of Herman Cain and Stephen Moore), it’s unlikely if the president nominates more credible dovish picks to the committee. With even more doves at the Fed, it’s possible interest rates could lower further.

The one risk to this, the report notes, is to the Fed’s long-term independence, which could be eroded with such a move, and cause a rise in rates “at the long-end of the curve.”

Further tax cuts are also a possibility, Capital Economics notes. Treasury Secretary Steve Mnuchin on Jan. 23 pledged a new round of tax cuts for the middle class while at the World Economic Forum in Davos, Switzerland. While Capital Economics finds it “unlikely” that a tax cut package would be as large as the 2017 Tax Cuts and Jobs Act, “we know that leaders in Congress would like to extend the individual tax cuts.”

“That, together with the higher spending caps agreed to last year, means that the federal budget deficit would rise above 6% of GDP by the mid-2020s,” the report stated. While the tax cuts would be deficit-financed, tax credits for companies could be beneficial for business investment, and wouldn’t cost as much as headline tax cuts. However, this is reliant on Republicans not only maintaining control in the Senate, but also winning back the House this year.

Deregulation would also steepen under another Trump term.

“So far, deregulation appears to have had little impact on economic growth. But the benefits could build with time, providing a more meaningful boost to the supply side of the economy over the coming years,” the study noted.

View photos President Donald Trump after a press conference at the World Economic Forum in Davos, Switzerland, on January 22, 2020. (Photo by JIM WATSON / AFP) More

Another Trump term would likely also mean nominations in federal courts, which would mean there could be regulatory rollbacks. While the energy sector has seen benefits from a loosening of environmental regulations and easing Dodd-Frank regulations on smaller banks gave a boost to lending, Capital Economics said there could be long-term impacts to the downside.