One slip from Trump and this rally will grind to a halt, former Fed governor says

Markets remain optimistic on Trump policies: Kroszner

Investors could get disappointed and market sentiment could quickly turn if President Donald Trump slows down on his current bout of policy execution, a former Federal Reserve governor told CNBC on Thursday.

Market players have shown signs of confidence on the potential economic benefits of the new U.S. administration with Trump promptly putting forward many of his campaign pledges. As a result, the Dow Jones reached an all-time high on Wednesday and broke the psychological 20,000 mark. But such a trend could reverse very easily, says Randy Kroszner, professor of economics at the University of Chicago.

"I think there are very high expectations for executions on some of the economic parts of the program, cutting taxes, trying to rationalize their taxes to bring some of the $2 trillion trapped offshore to onshore, de-regulation," he said.

"And these things, I think, are considered positive by most market participants. And if somehow there's a slip in execution that's the thing that will cause the markets to pause," the former Fed governor stated.

President Trump has promised to lower taxes and to make infrastructure investments of $1 trillion. Within less than a week in office he has requested the U.S.'s withdrawal from a trade partnership with Asian-Pacific countries, the construction of a wall on the border with Mexico and support for new oil pipelines.

Despite the potential for a snapback in market, Kroszner added that the economic plans of Trump could be a boost for the largest economy in the world.

"Tax reform could actually bring some cash back to the U.S. relatively quickly, that could also actually be helpful at least in the short-term for the budget," he told CNBC. In terms of infrastructure projects, "that takes a long time, it's very hard to get the money out quickly, it's a 2018 kind of thing," Kroszner said.