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11 07 24 Investopedia's Caleb Silver discusses upcoming federal reserve decisions
But there's only one feeling like knowing your banker personally, like growing up with a bank you can count on, like being sure what you've earned is safe, secure, and local. There's only one feeling like knowing you're supporting your community. You deserve more from a bank. You deserve an institution that stood strong for generations. Bank of Colorado. There's only one member FDIC. What will Trump's return to the White House mean for the economy? Caleb Silver, the editor-in-chief of the Vestapedia joins us now in the KOA Commissphere Health Hotline. Caleb, welcome back. We've already seen some gyrations with the stock market, some big numbers. I would imagine this is temporary, but there must be some sort of exuberance knowing that the Trump administration is coming in and some of their fiscal policy. Yeah, it's got a lot to do with that, but also we had a quick resolution. This didn't drag on for days or weeks, and investors like to be able to see the future. They can see the future right now, and it looks like, given Trump's promises during the campaign, an extension of the 2017 Tax Cuts and Jobs Act that lowered the corporate tax rate from 35% to 21%. He intends to keep it down there, maybe even lower for some companies. Also a lot of government spending coming up, whether that's for infrastructure buildup or deportation or building a wall or defense. Government spending also bullish for the stock market and the other big thing, deregulation. The Biden administration, especially the Federal Trade Commission and DOJ, have been very tough on big tech, been very tough on the banking sector. We haven't had any big mergers or acquisitions. That should open up as well, and Trump favors a very low interest rate environment. The Fed is supposed to be independent, but he's talked about bringing the Fed under the executive branch control. All of those signals, very green for investors looking for more upside. Maybe a yellow light, if not a red light, is a lot of this talk about tariffs. Trump is very big, at least publicly saying so, about high tariffs against countries that he wants to punish. Is a lot of that bluster just for negotiation's sake? It could be, but don't forget, he actually put over $300 billion in tariffs in place when he was in office. The Biden administration kept those and added more to them. He's talked about it across the board, 20% tariff for all imports. That is inflationary anyway you look at it, because guess who pays for those higher prices? The consumers do. Retailers don't. They pass the costs on to us. But if you're a small business and you need parts coming in from the Pacific Rim region and you're paying a 20% tariff on that, that could be very difficult for your business. Now the trade-off, Trump has said is, I'm going to give you lower taxes to deal with those tariffs, and we're going to make much more product here in America, so don't worry about it, but you can't help but know that tariffs do cause more inflation. And guess what? So does government spending. The inflation we've had over the past four years, which has been extraordinary, was because the government dumped a lot of money into the economy, seven trillion during Trump's term because of COVID, and getting the economy back in shape and another four or so trillion by the Biden administration. You put money into the economy like that. You're getting inflation. We've had seen inflation slow, but it's not coming down, and as Americans, we don't really want to see deflation, that's not a healthy sign. Caleb, we talked a little bit about the sectors in the market that are improving as they're anticipating Trump's future policies, but what companies are not soaring? What are concerns that they have about the Trump campaign? Well, we saw the housing stocks really fall yesterday. Why? Because the mortgage rate, the 30-year mortgage has been ticking up higher and higher, especially as this election is drawn near. Now, why is that happening when the Federal Reserve is supposed to be cutting interest rates? Well, the Fed will cut interest rates today again at quarter point, but that controls short-term interest rates. The mortgage yields are based on the 10-year treasury, and that is super affected by things like the deficit in government spending. Lots more government spending is coming our way. That's why you've seen the yield on the 10-year rise, which has pushed up the 30-year fixed mortgage back into the high sixes. That housing sector's sell-off was very big yesterday, but so is the sell-off in green energy stocks because those benefited well under the inflation reduction act, which is really a climate bill under any other name. He's talked about rolling that back, so oil and gas did very well yesterday, but solar stocks on the other hand did very poorly. Caleb, what's the saying? When America sneezes, the rest of the world catches a cold or something like that. I want to broaden this out. We see some action in our markets, but is the globe reacting economically to a future Trump administration? You better believe it, emerging market stocks got hammered yesterday. Why? Because of those incoming tariffs, if they are put into place, that's not good for them. You saw emerging markets do very poorly, you saw Chinese stocks do very poorly yesterday. Europe is not doing so great. They just had an interest rate cut at the Bank of England. Why? Because more tariffs, it's just bad for their economy, when they're trying to get their economies back on to solid footing, and if they're going to be dealing with an administration that is very tough on them in terms of tariffs and other measures, it's going to be hard to do business with America, but the US stock market really showed its exceptionalism yesterday and has really been the place to be for the past 20 or so years. I think President Trump would like to see it remain that way. With the Federal Reserve expected to cut its federal funds right by a quarter point today, is the Fed still going to be on inflation control duty almost in perpetuity with inflationary tariffs, government spending? So they're going to have a rate of race again as a lever against inflation. Well, it depends what happens to the Federal Reserve because Trump talked about putting the Fed underneath the executive branch control. That's never been done before. It's supposed to be independent so it can set monetary policy to keep the economy running on all cylinders. He doesn't like that. He wants low interest rates. He's talked about potentially replacing Powell, even though he put Powell into that seat when he was first elected and keeping a very low interest rate regime. But imagine if the executive branch and the president can control interest rates, that kind of happens over in China. It doesn't end well necessarily. You want these things to be independent, and they may be on inflation watch. But if the president Trump controls both houses and he's got the Fed under his control, who knows how he would be able to put inflationary measures in control? But I'll tell you what, a lot more government spending and a lot more tariffs means a lot more inflation in any way you look at it. We'll talk a little bit more about those proposed tariffs coming up at 749 this morning. If you're in chief of the Investopedia, it's Caleb Silver. There's only one feeling like knowing your banker personally. Like growing up with a bank you can count on. Like being sure what you've earned is safe, secure, and local. There's only one feeling like knowing you're supporting your community. You deserve more from a bank. You deserve an institution that stood strong for generations. Back of Colorado, there's only one member FDIC. At Sprouts Farmers Market, we're all about fresh, healthy, and delicious. Step into our bulk department to discover a world of options with hundreds of scoopable bulk bins and grab-and-go favorites. From wholesome grains and spices to limited-time goodies like pumpkin apple cashews and butter toffee peanuts. Plus buying in bulk means you can get as much or as little as you like for your next recipe or snack attack. Visit your neighborhood Sprouts Farmers Market today or fly for fills every scoop. (dramatic music)