Nicole Lapin (0:02)

I'm Nicole Lapin, the only financial expert. You don't need a dictionary to understand it's time for some money rehab. So there has been a lot of movement on Wall street since Trump won the election, including the Fed's second rate cut since the period of COVID area inflation insanity. Now everyone is trying to predict the future and make adjustments around what economic policies they think Trump will put into place in January. For example, some companies like Steve Madden have already started to move away from production in China and preparing for Trump's tariffs. 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 thing. Trump isn't the decision maker when it comes to interest rates. Our guy when it comes to interest rates is Jerome Powell, AKA J. Powell, the chairman of the Federal Reserve. Trump and Jay Powell have had some exchanges in the press lately that seem a little testy, so we might forget their history. But Trump actually gave Jay Powell his job. Jay Powell has been in the game for a while. He served as Assistant Secretary and Undersecretary of the treasury under Bush Sr. And spent about a decade as a partner at the Carlyle Group, which is one of the leading investment firms specializing in private equity. The co founder of Carlyle Group, David Rubenstein, came on the show and he was surprisingly funny, I will say, in a PE kind of way. Anyway, after leaving Carlisle in 2005, Powell worked as a partner at other investment firms. Eventually, he got his government roots through a pretty untraditional path. He became a visiting scholar at the Bipartisan Policy Center. There he was paid a symbolic $1 per year to go around D.C. convincing Republicans to raise the debt ceiling without causing a government shutdown. Obama nominated him to the fed board in 2012 and Trump appointed him chair in 2018. So even though Trump appointed him just six years ago, Powell has been in and out of Washington for decades. Why is Jay Powell's resume worth noting? Well, first, I think the $1 salary thing is just a boss 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 Powell and how they might duke it out when Trump is sworn into office next year. When Trump talks about lowering interest rates for Americans, he talks about targeting the upstream interest rate of the Fed rate. But the President can't set the Fed rates. Only Jay Powell and the rest of the Fed board control that with the Fed all over the news in the 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 rate, it is not your mortgage rate, it is not your car loan 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 Fed rate. Let's double click 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 yields, not the Fed rate. Bond yields are the interest rate that investors expect to be paid for lending money to the government. Typically, the Fed rate and the bond yield move together, but right now they're not. The Fed rate is going down, but bond rates are rising as investors bet that the Trump administration may need to borrow heavily to fund itself, especially if tax cuts are on the horizon. But more on that in just a sec. Mortgage rates usually trend with the 10 year bond yield more than the Fed rate. So if the Fed rate is falling, unfortunately, mortgage rates might not follow. Basically, normally Fed rates, bond yields and mortgage rates move all in the same direction. But right now, Fed 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? Well, he could pressure the Fed to lower rates. And if he goes nuclear, he could pressure Jay Powell to resign and then replace him with someone more favorable toward dramatic rate cuts. But when asked if he would resign if Trump demanded it, Jay Powell simply said no. He pointed out that Trump doesn't have the power to fire him or other board members. Trump has made it clear that he won't reappoint Jay Powell. But Powell's term is secure until 2026, so he's got a fair amount of time left. Plus, Jay Powell is in a uniquely strong position. He's clearly got some FU money. The man opted to work for a single dollar for a couple of years. He's also got their respective Wall street who see him as one of their own. And he's got political backing from years of policy work on Capitol Hill. One thing Trump can do, however, is announce Jay Powell's successor early, which could undermine Jay Powell's authority at least a little. But how much difference that would make is unclear. Again, the best thing for Trump to do might be to do nothing at all. Right now, the expectation 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 purview. Trump has promised to beat inflation by lowering gas prices, cutting taxes, beginning mass deportations, and raising tariffs. Let's break that all down. First, gas prices. Lowering gas prices is a crowd pleaser, 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 US which you know he's into, hence his drill 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 2008 and 2012. 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 backfire because they increase the amount of money in circulation in the economy too much, which is a precursor to 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 guessed it, inflation. So as much as we all hate taxes, they're a key part of what makes our money worth anything at all. Trump has suggested that the government will not have to print more money because the income from his increased tariffs will cover the money the government loses from tax cuts. So let's talk about number three, those tariffs. I did a whole deep dive on this. In another episode that I've linked in the show notes, but Trump's tariff policy is the least popular of Trump's policies in economist circles. Tariffs are taxes on imported goods paid for by importers. For instance, Trump threatened John deere with a 200% tariff if it moves production to Mexico from the United States. That would basically mean that for every tractor produced in Mexico and then brought back to the U.S. to sell, John Deere would have to pay a 200% tax. This tactic might prevent companies from outsourcing, which will drive up prices. Imagine, for example, if Apple suddenly had to pay a 60% tariff on every iPhone imported to the U.S. the result? Higher prices for us the consumers. Tariffs often lead to retaliatory tariffs 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 if tariffs go up. Lastly, number four, mass deportations. There is so much to 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 industries like agriculture and construction, which rely heavily on undocumented labor. If this workforce shrinks, wages might rise as companies scramble to fill gaps, driving up the price of food, housing and more so net net. It is possible that Trump's policies could actually raise prices, not lower them. But in every economy, there's always an opportunity to make money, even in inflationary environments. If you know where to look for today's tip, you can take straight to the bank. Stocks are soaring right now, which is fantastic. But it might mean your portfolio is leaning too heavily towards stocks and not toward lower risk investments like bonds. Take this as a reminder to check your portfolio balance. If you don't have an investment plan, here's a quick rule of thumb. Let your age determine the percentage of bonds you hold. So if you're 30 years old, your portfolio would be 30% bonds and 70% stocks. Money rehab is a production of Money News Network. I'm your host, Nicole Lapin. Money Rehab's executive producer is Morgan Lavoy. Our researcher is Emily Holmes. Do you need some Money Rehab? And let's be honest, we all do. So email us your money questions. Money rehab moneynewsnetwork.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 @moneynews and TikTok UNYNewsNetwork for exclusive video content. And lastly, thank you. No, seriously, thank you. Thank you for listening and for investing in yourself, which is the most important investment you can make.