How Trump Will Impact Interest Rates
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I'm to call lappin the only financial expert. You don't need a dictionary to understand. It's time for some money. We have.

So there has been a lot of movement on wall street since trump on the election, including the feed second rate cuts since the period of covered area inflation insanity. Now everyone is trying to predict the future and make adjustments around what economic policies they think trump will actually put into place in january.

For example, some companies like Steve mountin have already started to move away from production in china and preparing for trumps terrace. Another economic promise trump has made is lowering interest rates. But before we start acting on that assumption, we need to talk about whether or not trump can actually make good on this promise.

Because here's the dg. Trump isn't the decision maker when IT comes to interest. Strates r guy, when IT comes to interest rates, is jero pal, aka j pal, german of the federal reserve trumping jail? Have hands some exchanges in the press lately that seem a little little testy, so we might forget their history.

But trump actually gave jo his job. Jpl has been in the game for a while. He served as assistance secretary and under secretary of the treasury under bush senior, and spent about a decade as a partner at the coral al group, which is one of the leading investment firm specializing in private equity, the cowder of carlie group.

David rubin stand came on the show, and he was surprisingly funny, I will say, in A P, E. Kind of way. Anyway, after leaving Carole in two thousand and five, how worked as a partner at other investment firms, eventually he got his government routes through a pretty untraditional path.

He became a visiting scholar at the bipartisan policy center. there. He was paid a symbolic one dollar per year to go around D.

C, convincing republicans to raise the debt ceiling without causing a government shut down. Obama ominous him to the fed board into twenty twelve, and trump appointed him chair into one eighteen. So even though trump appointed him just six years ago, pal has been in and out of washington for decades.

Why is j house resume worth noting? Well, first, I think the one dollar salary thing is just a bus move. IT is rare when someone says, you know what, I have enough money, I am good. But also, IT helps have the full picture of the relationship between trump and jay haw and how they might do IT out when trump is worn into office next year.

When trump talks about lowering interest strates for americans, he talks about targeting the upstream interest rate of the federate, but the president can set the fed rates only jail, and the rest of the fed board control that. With the bed all over the news in last few years, you can probably do a whole episode on this yourself from memory. But the interest rate that the fed sets is the rate banks charge each other for overnight loans, that is IT IT is not your interest ate IT is not your mortgage IT is not your car alone or even the treasury bond rate.

Of course, your interest rates are affected downstream by the fed rate, but it's not always immediate and it's not going to be the same as the federate lets up look like on what we're seeing downstream. The fed has been lowering interest rates and signaling its intent to keep doing so, which is good news for short term interest rates. Longer term rates, however, are connected to bond yield, not the feed rate bond yield ds are the interest ate that investors expect to be paid for lending money to the government.

Typically the federate and the bone yield move together, but right now they're not. The feed rate is going down, but bond rates are rising as investors bad that the trump administration may need to borrow heavily to fund itself, especially if tax cuts are on the horizon. But more on that injustice.

CT mortgage rates usually trend with the ten year bond de more than the federate. So if the federate is following, unfortunately, mortgage rates might not follow. Basically, Normally, federates, bony's and mortgage era's move all in the same direction.

But right now, dead rates are moving in one direction, and bond rates and therefore mortgage rates are moving in the opposite direction. So if rates don't go down fast enough, what could trump actually do? He could pressure the rates.

And if he goes nuclear, he could pressure j. How to resign and then replace him with someone more favorable toward dramatic, great cuts. But when asked if he would resign if trump to demanded IT, japheth simply said, no.

He pointed out that trump s doesn't have the power to fire him or other board members. Drum has made IT clear that he won't reappoint jay pal, but pales time secure until twenty twenty six. So he's got a fair amount of time.

Love plus j out is in a uniquely strong position. He's clearly got some F, U. money.

The man opted to work for a single dollar for a couple of years. He's also got their respective well story who see him as one of their own. And he's got political backing from years of policy work on capital hill.

One thing trump can do, however, is announced jay powers successor early, which could undermine jaw's authority at least a little. But how much difference that would make is unclear. Again, the best thing for trump h to do might be to do nothing at all.

Right now, the expected is for the fed to keep lowering rates, but this could change if inflation expectations rise under trump because if inflation rises, interest rates will get jacked back up to curb Prices. For now, though, inflation is falling, I know IT doesn't feel that way. That's because for Prices to actually go down, we would need to go through a deflationary period, and that hasn't happened.

IT is unlikely to happen unless we go through a serious recession or depression, which means that Prices will continue to increase, although not as rapidly as they have and hopefully in line with wage increases. While interest rates are the go to lever for affecting inflation, there are other strategies trump has that sit more squarely in the president's preview. Trumpets promised to beat inflation by lowering gas Price, cutting taxes, beginning mass deportations and raising terf.

S let's break that all down. First, gas Prices. Lowering gas Prices is a credible laser, but it's a hard move to pull off.

The president's control here is limited because energy companies are private and the us. Already produces a lot of oil. The president can influence gas Prices through policies by supporting increased oil production in the U.

S, which, you know, he's into hands real baby drill stance by releasing petroleum from the strategic petroleum reserve. Or he could subsidize gas in some way. But we always end up paying for subsidies in one way or the other.

The government has their own books to baLance. But when you adjust for inflation, gas Prices are already pretty low, not like the lowest, but still lower than their high points in two thousand and eight and twenty twelve. Realistically, it's unlikely he can really help move this number.

But if he can, that's an improvement that would help americans. Second, taxes. Tax cuts can back fire because they increase the amount of money in circulation in the economy too much, which is a precursor.

Inflation plus fewer taxes mean less revenue for government spending. So the solution often shifts to printing more money, but when the government does that, the dollar becomes worth less and less. When governments print more money, they bring down the value of the currency, which leads to you get IT inflation.

So as much as we all hate taxes, there are a key heart of what makes our money worth anything at all. Drum has suggested that the government will not have to print more money because the income from his increased terabits will cover the money the government loses from tax cuts. So let's talk about number three, those terrible.

I did a whole deep dive on this in another episode that i've linked in the show notes. But trumps terror policy is the least popular of trumps policies in economist circles. Serfs are taxes on imported goods paid for by importers.

For instance, trump threatened john deer with a two hundred percent tariff if IT moves production to mexico from the united states, that would basically mean that were every track or produced in mexico and then brought back to the us. To sell, john deer would have to pay a two hundred percent tax. This tactic might prevent companies from outsourcing, which will drive up Prices.

Imagine, for example, if apple suddenly had to pay a sixty percent year of on every iphone imported to the us, the result, higher races for us, the consumers. Terrorists often lead to retaliatory tariff s from other countries, which drives up Prices even more, even producing that same phone here in the us can lead to higher Prices as production costs are higher. Whether companies keep production local or abroad, Prices are likely to rise of terriers.

Go up last the number four, mass importations. There is so much be said about this, especially the ethical and moral implications, but right now we're just going to follow the numbers. Deportations are problematic for many reasons, but they could end up driving up inflation, particularly in like agriculture and construction, which rely heavily on undocumented labor.

If this workforce shrink, wages might rise as company scramble to fill gaps, driving up the Price of food, housing and more so, net, net IT is possible that trumps policies could actually raise Prices, not lower them. But in every economy, there is always an opportunity to make money, even in inflationary environment. If you know where to look for today's step, you can take straight to the bank.

Stocks are staring right now, which is fantastic, but that might mean your portfolio is leaning two heavily towards stocks and not toward lower risk investments like bombs. Take this as a reminder to check your report fully o baLance, if you don't have an investment plan, here's a quick rule of them, let your age to determine the percentage of bonds you hold. So if you're thirty years old, your portfolio would be thirty percent bonds and seventy percent stocks.

Money rehab is a production of money news network. I'm your host, nico lap in money rehab, executive producer is more than avoid our researcher is Emily homes. Do you need some money rehab? And let's be honest, we all do. So email is your money questions money rehab at money news network to com to potentially have your questions answered on the show or even have a one on one intervention with me and follow us on instagram at money news and tiktok at money news network for exclusive video content. And lastly, thank you so seriously.

thank you. Thank you for listening and for investing in yourself, which is the most important investment you can make.