Trump called the Federal Reserve and told them to cut interest rates immediately or he'll stop trading with countries that sell us more stuff than we buy from them. This is how monetary policy works now. A phone call and a threat.
The Fed sets rates based on inflation data, employment figures, and economic models built over decades. Trump sets trade policy based on whether Jerome Powell hurt his feelings. One of these approaches has theoretical backing. The other one just threatened to cut off trade with China, Mexico, and Germany because a different branch of government won't make borrowing cheaper.
Retail traders saw this headline and immediately started googling "what happens to my Robinhood account if we stop trading with everyone." The answer is nothing good, but they'll find out anyway because they're already balls-deep in leveraged ETFs they don't understand.
The threat makes no sense on its face. Lower interest rates would strengthen those trading partners' currencies relative to the dollar, which would make our trade deficit worse. But pointing this out requires understanding how currency markets work, and we're well past that point in the timeline.
Some guy in Wisconsin just read this headline and decided to buy gold. Not gold futures. Not a gold ETF. Physical gold. He's going to pay a 10% premium over spot, store it in his basement, and check the price every single day for the next three years. He'll sell it at a loss in 2029 and blame the Fed.
The S&P will probably gap up Monday morning anyway because nothing means anything anymore and the market's just going to do whatever it was going to do regardless of whether the President understands how central banking works.
Photo by Frolicsome Fairy on Unsplash
Leave a Comment