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THE FEDERAL RESERVE:
Their priority, over anything else, is to make sure that the United States has a strong labor market, maintains maximum levels of employment, and operates in such a way that keeps pricing stable. What makes this unique is that The Federal Reserve is an INDEPENDENT agency, meaning they’re not at the whims of political pressure when making policy decisions. Their decisions do not need approval from anyone in Congress.
THE INTEREST RATE DEBATE:
Over the last 5 years, the United States has spent (and borrowed) an unsustainable amount of money. When interest rates are near 0%, making those payments is easy. But, when interest rates rise to recent record highs, all of a sudden it becomes quite expensive to maintain.
LOWERING RATES:
-Wholesale Inflation Is Going Down
This is what’s known as “The Producer Price Index,” or what businesses pay for the cost of materials, that eventually gets passed on to the consumer. Llast month - there was no increase, whatsoever, suggesting that inflation isn’t getting worse in spite of tariff concerns.
-Rate Cuts Would Save The Government Almost $1 Trillion Per Year
In this case, our interest rates have a direct impact on what we pay for the national debt - so, lower rates would equate to a substantial savings.
-For the last year - inflation has pretty much bottomed out.
Inflation has remained below 3% for the last 12 months. Even though we’ve seen a bit of an increase recently, in the big picture, it’s really not that bad.
RAISING RATES:
-Inflation Is Increasing Again
Inflation rose 0.3% month-over-month, which - if that continues - would put inflation back above 3%.
-The Labor Market Is Still REALLY Strong
Typically, the Federal Reserve lowers rates in response to a spike in unemployment, but that’s currently near a record low.
-Tariff Concerns.
Jerome Powell said it himself: they would have cut rates, but tariff uncertainty is putting them on edge.
-Political Pressures Don’t Seem To Work On Jerome Powell.
Trump tried a similar strategy back in 2018, and Jerome Powell never budged.
FIRING JEROME POWELL:
By law, a President has the right to remove the Federal Reserve Board Members “For Cause,” which is generally interpreted as an inefficiency, neglect of duty, or malfeasance. HOWEVER, the law is unclear whether “For Cause” firings apply to the chair of the Federal Reserve. From Powell’s perspective, he’s openly said that Trump is not permitted to fire him “under law,” and - more recently, The Supreme Court said: “the relationship between the president and the Federal Reserve is different from that of other independent agencies, signaling that Chair Jerome Powell is legally protected from being removed by President Donald Trump.”
FORCED RESIGNATION:
In theory, Trump could make Jerome Powell’s life so difficult that he voluntarily gives up his position, in favor or someone else that Trump appoints. This is why Trump is beginning to accuse Jerome Powell of “mismanaging the U.S. central bank’s $2.5 billion renovation project."
MARKET SELLOFF:
It’s largely believed that if the Federal Reserve gives the appearance of losing their independence, it would undermine America’s financial markets, it would cause treasury rates to spike back up, and the stock market would begin to sell off from a unprecedented uncertainty.
In this case, if the Federal Reserve is seen as “politicized,” investors will demand a higher risk premium on US Treasuries (after all, the United States Federal Reserve will no longer be seen as an independent entity, and lowering interest rates would undermine the long term safety of the market). Not to mention, if there’s too much “easy money,” the dollar would further be devalued, leading to a sell off of US Currency.
Personally, I think it’s obvious that Trump is the type of person to openly test the waters by throwing out statements - seeing how the market reacts - and then making a decision from there.
00:00- Intro
01:18 - Raising vs Lowering Rates
06:12 - Protect Your Information
08:00 - Firing Jerome Powell
09:14 - Powell Resigning
10:53 - Market Selloff
12:12 - What Will Likely Happen
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