Does President Trump bluff at rates?

It is Friday and we have more news about rates. Initially it was announced that the collection of the tariff tasks would be postponed for a month, but then the press secretary of the White House declared that they would take effect tomorrow.

So what’s going on?

As we have discussed since then November 7, 2024Prepare for a number of crazy headlines. However, let’s keep things in perspective. I don’t believe we will see universal rates for the Trump period; This is all about negotiating a deal with other countries. Can we possibly see rates that are introduced for countries with a strong arm to deals? Yes. However, this is all a short -term trick to get better deals. Trump does not want people to think he is bluffing, so he can follow his threat, but it would only be a short -term event.

For example the Loaded foundation just Their position updated On the effects that these rates would have if they were actually implemented. “We estimate the 25 percent rates for Canada and Mexico and 10 percent rates for China that suggested to come into force in February 2025 would:

• Increase taxes by $ 1.2 T (2025-2034)
• Reduce GDP by 0.4%
• Reduce employment by 344k jobs
• Result in an average tax increase of $ 830 per American household (2025)

Trump is not going to do rates that are so large with our most important trading partners. This morning Sarah and I recorded an episode of the Daily Podcast from Housingwire who discussed this situation before the White House even made the announcement.

Below My core belief Why I don’t see a universal rate policy that it is staple of the economic policy of President Trump: If rates were an important economic policy, they would simply be implemented as quickly as possible because you would need them for many years to promote real change.

Instead, this situation looks like a complicated dance of trade negotiations. It is primarily intended to facilitate discussions, to protect exemptions for specific groups and to create more favorable deals. Rates are not independent measures imposed by one country; Instead, other countries will respond with their own rates. This can lead to an escalation in a complete trade war, which ultimately does not benefit anyone.

Moreover, it can considerably disrupt global currencies, in particular smaller economies. The US dollar was considerably strengthened after reports of upcoming rates, which the president does not want, because a stronger dollar makes it more difficult to export goods.

Moreover, it is important to remember that we experienced many negative jobs revisions in 2018 and 2019, because business investments fell to zero and the stock market dropped by around 20% At the end of 2018.

So what was the response of the bond market when the White House said that rates are coming tomorrow? The return of 10 years rose only a few basic points and not near the annual high point of 4.81%, but rose from 4.51% to 4.57% while I write this now.

I understand that headlines can be confusing: a moment hears you one thing, and only 10 minutes later you hear something completely different. It is important to remember that we have more than 336 million people in America. Almost 50% are employees, but 100% are net consumers. (Although babies do not make purchases themselves, their parents buy things for them.) In a consumption -based economy, this is an important variable to consider when considering rates, especially if your currency is too strong.