Trumps Demand for Lower Interest Rates

This is not a politics post, it s an attempt to explain why it’s not that simple to lower rates.

Trump needs lower rates and a lower dollar for his agenda. When the economy grows stronger bond yields go up so does the dollar. That works against his goals, he needs a weaker economy than what we have to lower rates, bond yields and a weaker dollar. A weaker dollar helps with exports because it makes our goods cheaper for outside markets to buy our stuff. Look at China right now, their economy is collapsing and their 10 year bond yields are at an all time low. China is desperately trying to stimulate their economy in any way they can. The US economy is an entirely different picture from China. Our retail sales are beating expectations, growth is beating expectations, while the rest of the world economies are not keeping pace with us. That’s making the dollar stronger. That’s bad news for Trumps plans.

For two reasons, manufacturing jobs are down over the last year, construction jobs are going to suffer next if rates stay elevated. Builder sentiment in terms of forward looking demand is not positive according to the last survey.

Our monetary policy is very restrictive towards housing right now. The Fed s not likely to pivot on rates until the labor market breaks. Or risk inflation. Start watching the dollar. It will be key.

So what’s the game plan. Trump can start working the Fed like a coach works a referee. But there is nothing much he can do to lower rates. Maybe he can have the Treasury cap the 10 year rate but that’s unlikely. When it comes to rates the bond market is going to do what the bond market does. A big test will come when people start losing their jobs. Will the Fed blink.

Lowering oil prices will make wages look better but it won’t lower bond prices. The thing is we are already producing a lot of oil and that’s driving down margins. Oil companies don’t like that. Drill baby drill is a problem for the oil companies. Oil production right now is killing it. The United States has produced more crude oil than any other country for six years in a row. In 2023, the US produced an average of 12.9 million barrels of crude oil per day, which was a record high. In 2024, the average daily production was 13.12 million barrels, which was a 7.1% increase from 2023. 

Ok this post got boring for me but I spent too long typing it out to delete it.

This is a much more complicated situation than what Trump faced I n 2016 when there was no inflation. It will be interesting to see if we hear more immigration and renaming the Gulf and less talk about the economy in the coming months. For me, I’m laser focused on the economy and the financial markets.