Can the President Impact Interest Rates?
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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 actually 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, a.k.a. Jay 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 J-PAL his job. J-PAL 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 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.
Who is responsible for setting interest rates?
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 J-PAL 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.
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