What Trump Tariffs Mean for Prices & Fed Cuts Rates, but Mortgages Are Up?

0:00Tuesday on NBC, Jimmy Fallon and Bozma St John host the highly anticipated new competition show. I hired 10 creatives from all walks of life. They will be battling it out to see who can impress the world's biggest brands. This is a huge opportunity. This is the battle for the next big idea. This is not play play. We're spending millions of dollars. I'm so excited to embark on this adventure with all of you. Make the best idea win! On Brand with Jimmy Fallon. Series premiere Tuesday on NBC. Good Morning Brew Daily Show. I'm Neil Freiman. And I'm Toby Howell. Today, Jerome Powell cut interest rates for the second time this year.

0:38So why are mortgage rates going up? It's Friday, November 8th. Let's ride.

0:48Good morning, and I hope you all have a better Friday than incumbent political parties this year, because they've seen a historic wave of defeats. Here's a wild stat I saw in the Financial Times yesterday that would be enshrined in the Neal's Numbers Hall of Fame. After the Democrats lost on Tuesday, every governing party face an election this year. All 10 from the UK to France to Japan to the United States lost vote share. It's the first time this has ever happened. Truly unprecedented. And while there are absolutely local factors at play, the one thing every country experienced over the past couple of years was inflation.

1:26So voters appear to have said my life has gotten way more expensive. People in charge, you're fired. I mean, it speaks to the viability of just framing yourself as an agent of change when you are going to the polls. And also the odd reality where maybe the macroeconomic indicators were pretty positive for a lot of countries. But on a more individual level, people were feeling that pinch of inflation. But, you know, my main takeaway here is I'm really not liking this stat if I am a Chiefs fan or I'm a Boston Celtics fan. Because if the incumbents are losing, that means it could be a rough time for those two powerhouses.

1:59Now a word from our sponsor, Yahoo Finance. Neil, one of the best parts of Yahoo Finance is the buffet of information it provides you. When you open up its homepage, you are greeted with all the headlines from the news that might affect your portfolio. But you also get quick snapshots of the market like top gainers and losers from the day, top economic events that should be on your radar, and how the international markets are doing. It is this cornucopia of information, but not so overwhelming that you miss the important stuff. It's really helpful, too, for what we do bringing this pod to you guys.

2:29And I think it will be just as helpful for you in your daily routines. But don't take our word for it. You can see it for yourself by heading to YahooFinance.com. Go see our purple prints in action at YahooFinance.com. This episode is brought to you by State Farm. Checking off the boxes on your to-do list is a great feeling. And when it comes to checking off coverage, a State Farm agent can help you choose an option that's right for you. Whether you prefer talking in person, on the phone, or using the award-winning app, it's nice knowing you have help finding coverage that best fits your needs.

3:03Like a good neighbor, State Farm is there. As if this week didn't bring enough hugely consequential events, the Federal Reserve cut interest rates yesterday. It was, as expected, a traditional quarter-point decrease, which was smaller than the unusually large half-point cut the Fed announced in September. By cutting rates again, the U.S. Central Bank is signaling it's satisfied that inflation is coming back to normal levels and is focused more on the job market, lowering borrowing costs for consumers and businesses, which is what a rate cut does, hopes to keep unemployment at its currently low levels.

3:38So two rate cuts in the books, but an Agatha Christie level mystery about what lies ahead. The reelection of Donald Trump promises to massively shake up the path of the U.S. economy and so too the Fed strategy, which must respond to those changes. For now, Chair Jerome Powell said it was too early to tell what Trump's economic policies would mean for the Fed because they haven't been implemented yet. At a press conference, Powell told reporters, we don't guess, we don't speculate, we don't assume about which campaign plans will be made into reality. In the near term, he said, the election will have no effects on our policy decisions.

4:11Yeah, financial policymakers try to view elections not as these big, huge events, but more as just data points that allow them to feed into their decision-making but won't change it. But we do have to talk about the relationship between Trump and Powell, which actually stretches back to Trump's first term. Trump appointed Jerome Powell, but then quickly turned on him as he wasn't doing exactly what he wanted, didn't lower interest rates quick enough as Trump wanted at the time. Trump has called him an enemy and criticized him in the past. What has frustrated Trump about Powell is that he's pretty powerless over him.

4:45The president cannot on their own bring down rates. The Fed was granted independence from Congress back in 1951 so that central bankers could kind of do their thing and not have the influence of a politician telling them which way to conduct their rate cuts. And so that is why there's going to be this rocky relationship and the question of Fed independence has been a big issue in this Trump presidency. Yeah, and a reporter actually asked Powell yesterday whether he believed the president could remove him, and here's the clip. Do you believe the president has the power to fire or demote you, and has the Fed determined the legality of a president demoting at will any of the other governors with leadership positions?

5:26Not permitted under the law. Not what? Not permitted under the law. Thank you. That was a mic drop. It was actually the funniest moment. Rarely do we see these moments from these Fed press conferences go viral, but that one absolutely went viral. The line between the White House and the Fed could become blurry because Trump has the opportunity to appoint a Fed chair in 2026. And if he does oust Jerome Powell, which is looking likely that he might, that line might be a little blurrier because he might put someone in there who he thinks he could have more control over. So Powell is saying right now that, no, I cannot be ousted under the current law.

6:04He was very explicit about that. But potentially when his term ends in 2026, then we could see a more lenient Fed towards Trump's will. Meanwhile, Trump's policies are set to shake up the Fed's moves and its potential path forward for rate cuts because Trump's economic policies, if they are implemented, are expected to raise inflation. The tariffs, the tax cuts, those are all going to stimulate demand, which could raise prices. In a recent report, the bank Nomura forecast inflation would be 75 basis points higher in 2025 under a Trump presidency. that could absolutely shake up the path of Fed rate cuts.

6:44The expectation is that under a Trump presidency, there would be fewer rate cuts going forward because when you lower rates, you stoke inflation essentially. And so if there's already gonna be inflation stoked, then the Fed might pause those rate cuts and lower them at a more gradual pace than they would otherwise. Which is such a bummer because right now the Fed's preferred inflation member dropped to 2.1 % last month. That is just shy of the Fed's 2 % goal. So the central bank is trying to ease off the brakes that it has been applying to the economy over once inflation hit that 40-year high.

7:18So the road did just get a little bit bumpier ahead. Maybe the rate cut kind of cadence that we were all expecting is going to be a little different. Moving on. So even though the federal funds rate is falling, would-be homebuyers are not yet feeling the effects. The central bank lowered its benchmark rate by 25 points, as we just discussed, on top of its 50-point cut in September. And yet the average rate on a 30-year fixed mortgage has gone up since that first cut. It rose more than half a percentage point to reach 6.97 % this week, according to data from Freddie Mac released yesterday. And it might keep on climbing higher thanks to a recent Trump-inspired rise in the 10-year Treasury yield.

8:00Even though the Fed has its scissors out and is dutifully cutting away to try to push down borrowing costs, mortgage rates are unfortunately outside its control. They are more heavily influenced by treasury yields, which themselves are more influenced by what the general outlook for the economy is. And since the economy looks like it will continue to be strong, yields and therefore mortgage rates remain painfully high for homebuyers. Neil, throw a Trump presidency into the mix where his tariffs and tax cuts are expected to reintroduce inflation and put even more pressure on the 10-year. You have a recipe for gravity-defying mortgage rates.

8:34Yeah, this is a shock to a lot of us because we thought, or I thought, hey, the Fed's cutting rates. That's supposed to bring down borrowing costs. The mortgage rates have been so high for so long, freezing over the housing market. Finally, there's going to be some relief. People will be able to refinance and get those mortgages down around 5%. And it's just gone in the complete opposite direction and at an extremely large magnitude as well. In the last five weeks, the rate has risen. The average 30-year fixed rate mortgage has risen 67 basis points, which is the largest increase in two years.

9:06So not only has it just stayed level or gone up, it's gone up in a big way. And that is going to continue to give problems to people who want to buy houses or refinance or move. 30-year fixed mortgage rates were actually falling since May. So for a while, it looks like the Fed's rate cuts were kind of filtering through the market. But then that trend started reversing in early October, right around the time where prediction markets started indicating that Trump was going to have a good chance of winning the election. So we were seeing a little bit of relief, but then it jumped right back up. Rates are up from right around 4 % where they hovered for pretty much a decade going into the pandemic, but that 67 basis point rise has been extremely painful in the last five weeks.

9:49It was a total reversal from what you expected and what maybe the Fed was hoping for. Yeah, it's an interesting sign that the mortgage rates follow the 10-year yield and not the Fed's federal funds rate, which the Fed controls. That is a short-term rate. The 10-year yield is 10 years. It's a longer-term view of the economy, And this is a sign that investors think that the economy is going to hit the gas pedal and cause a little more inflation over the long term. One thing that you have to look at, too, is if mortgage applications are falling or rising as well, because mortgage rates do filter down to if people are buying houses or not.

10:30And mortgage applications have fallen for six straight weeks now. So you called it a frozen housing market. It did re-ice over. We're feeling like another mini ice age right now after it looked like things were thawing for just a little bit. Yeah, home sales are on track for their worst year since 1995. Since Wednesday, we've talked a lot about how Trump's re-election will impact the U.S. economy. But unlike Vegas, what happens in America doesn't stay in America, and his victory will have is already having massive consequences for the global economy. The top concern for other countries, both allies and foes alike, is Trump's proposed tariffs.

11:04He's pledged up to 20 % tariffs on every single import coming into the United States and 60 % from everything coming in from China. If enacted, and that's a big if, they would be the highest tariffs the U.S. has had in 100 years and fundamentally reshape global trade in a way we've never seen before. Analysts are already projecting a hit to other countries' economies should the tariffs get implemented, which is kind of the point. The U.S. puts up trade barriers to protect domestic industries at the expense of foreign companies. Your products become more expensive in the market. Ours become more attractive, is the theory.

11:38Two regions to watch are Europe and China, two of the U.S.'s largest trading partners. Europe exported one-fifth of its total goods to America last year, while China exported $500 billion in goods to the U.S., about 15 % of the value of all of its exports. Toby, the next four years could be one of dramatic upheaval for the world economic order. One thing to think about, too, is are tariffs going to be this real thing that are actually applied to blanket across Europe, across China, across Mexico? Or is it going to be more of a bargaining tool? Because remember, right now, the U.S. economy is a heck of a bargaining tool.

12:12It is the only place in the world right now, especially among G7 peers, that is growing at a sizable rate right now. So if you were confronted with the possibility of maybe losing access to parts of the U.S. economy, that is a huge bargaining tool because of just how big of a growth engine we are right now. So think of tariffs in two ways. One, they could actually happen or they might just be something that are brought to the table as a bargaining chip. Right. So let's run down maybe some countries and regions and talk about whether they are a winner or a potential loser in the new world order should these tariffs come to fruition.

12:47Start in Germany. Germany is seen as a loser in this new paradigm. I mean, cars are Germany's single largest export. The U.S. is the country's largest export market. So if there are tariffs on cars, and we know German automakers are already feeling the pinch. They're already hurting. Volkswagen is set to close factories in Germany for the first time. So it seems Germany and Europe in general could take an absolute hit if these tariffs come to pass. Goldman Sachs, already after the election, Goldman Sachs was very quick to downgrade its GDP projection for all the 20 countries that use the euro.

13:25They're saying it's going to expand at 0.8 % next year, which was down from 1.1 % forecast previously. Yeah, Trump has come out and railed against the EU's 158 billion euro trade surplus with the US. He's saying, especially last out of Germany, like you said, for selling it cars while not buying any in return. And then another thing that could make Europe a loser is that they could suffer this kind of added burden of increased defense costs if Trump kind of reduces support for NATO, which is another thing that he has said he'd do. And then another country that absolutely is in the crosshairs is China.

13:59China was hit with the bulk of tariffs during Trump's last term. It was caught a little bit flat-footed. But right now, the Chinese economy is hurting. The only area that is booming or growing for them is those exports. It's making all these goods, especially clean energy products, in its factories and shipping them abroad. Domestic consumption, people buying stuff in there is down. So China will likely have to flood its economy with stimulus if these tariffs happen. And it already is doing that. I mean, just overnight, I woke up to the headline that China announced a$1.4 trillion program to refinance local government debt, which is a huge stimulus in preparation for some of the economic pain that might happen in a Trump presidency.

14:44We would see a bit of a reshuffling, too, of where Chinese goods are ending up. You probably would see more of them end up in Europe, actually, because if tariffs are applied to China, then less are going towards the United States. Another potential winner from that reshuffling is Brazil, because Brazil already has seen greater trade with China. If you go back to the first Trump administration, we saw that China replaced all of its U.S. soybean imports with Brazilian soybean imports. So that is something that will happen. Like, this is a puzzle piece. Global trade is global. So there are places that if the U.S.

15:15isn't trading with you anymore, maybe you go to Brazil or Mexico or another place. So it's not just blanket winners and losers. There will be just kind of a reordering of the world economy. Up next, it is Stock of the Week, Dog of the Week time. I'm Christian McCaffrey, pro running back, and Abercrombie is an official fashion partner of the NFL. I'm not kidding when I say NFL by Abercrombie broke the Internet last year, and I think this season's lineup is even cooler. and so does my wife who keeps stealing all my hoodies. Stay fit for the season and Abercrombie's newest arrivals. Shop NFL by Abercrombie in the app, online, and in store.

16:01When did making plans get this complicated? It's time to streamline with WhatsApp, the secure messaging app that brings the whole group together. Use polls to settle dinner plans. Send event invites and pin messages so no one forgets mom's 60th. And never miss a meme or milestone. All protected with end-to-end encryption. It's time for WhatsApp. Message privately with everyone. Learn more at whatsapp.com. It is Stock of the Week, Dog of the Week time, where Neil and I pick one stock from the week's news that promptly reset their oven clocks for daylight savings time and one stock that is just waiting for next year for them to be correct again.

16:41Neil, I won the pre-show game of who can run a marathon faster, so I am up first. Or just run a marathon, period. A, faster period is faster. And my stock of the week is private prison companies. Sifting through some of the market reactions, there were plenty of winners in the best post-election stock rally we've seen in decades. But today we're zeroing in on private prison stocks, which got a huge boost in the wake of Trump's win. GEO Group, a real estate investment trust that specializes in the ownership and management of correctional facilities, is up over 50 % this week. And CoreCivic, one of the largest private prison operators, is also up nearly 60%.

17:19Why the big jumps? Well, a Trump presidency is likely to increase border security and detain more migrants crossing into the country illegally, which would lead to a jump in demand for detention facilities. Plus, a Republican-controlled Congress is likely to push for more funding for immigration and customs enforcement detention centers, leading to more opportunities for a company like GEO and CoreCivic. Neil, I would imagine a lot of people don't think about this industry much, but it does stand to benefit from Trump's immigration policies. Yeah, one of his core promises on the campaign trail, one that he could enact from day one, is the largest deportation in American history.

17:57There are 13 million immigrants in the U.S. illegally, and deporting them would be logistically very difficult and cost a lot of money. So if there is more of a budget set aside for doing this, which Trump and the Republican Congress would likely do, that is going to flow to these places that have detention centers. And the American Immigration Council said that the cost of deporting these immigrants over a little more than a decade would cost nearly$1 trillion. And so much of that money is flowing into the private sector because GEO did this presentation that said private companies provide 90 % of the beds for ICE processing.

18:39GEO itself provides 42 % of those private sector beds. So this is definitely a boon for the private prison sectors, not government-operated facilities. they do rely on these private operators. You know, I got to admit, it wasn't easy to find a dog this week. I can see why you foisted it on me. It was just incredible week for the stock market, but I think I found a group of companies that didn't go up and to the right like everyone else. Retailers like American Eagle, Crocs, and Five Below, who shares all fell modestly this week, and that's because of the threat of tariffs. There's that word again.

19:11American retailers that import their goods from China are expected to take a big hit from those tariffs because they're going to be the ones paying for them. So the choice is either eat those higher costs and dent your profits or pass along those costs to the consumer. And given those options, they're probably going to hike prices. In a study on Trump's tariffs released earlier this week, the National Retail Federation projected that they'd lead to dramatic double-digit percentage price increases in almost all six of the retail categories the group analyzes, which is apparel, footwear, furniture, household appliances, travel goods, and toys.

19:46Higher prices means shoppers already fed up with inflation are going to stay home. The NRF estimated that Americans would lose up to$78 billion in annual spending power due to the tariffs. Yeah, it's going to hurt consumers, going to hurt retailers. And then another thing I was looking at, at just the downstream effects, is how are shipping companies and trucking companies actually faring as well? Because a lot of retailers are front-loading their imports right now. So you actually did see a jump in trucking stocks, domestic trucking stocks like J.B. Hunt, Schneider National. They were in rally mode on Wednesday.

20:19One part of the supply chain that we saw falling this week was ocean carriers. Maersk kind of had this big slump because a lot of people think that these tariffs are going to kind of clog up the global supply chain roots. So it was interesting to see how domestic trucking companies were doing well because a lot of these importers or a lot of these retailers are importing a lot of goods. But on a wider scale, these shipping companies look like they're feeling a little bit pinched as are going to feel some pinch going forward. Even within the retail industry, there are going to be winners and losers.

20:53Some of retailers have gone through this before. There were tariffs on Chinese goods that are still in place that were implemented by Trump in 2018. And what they did was what we talked about earlier in the show was they reshuffled their supply chains away from China. So Steve Madden yesterday, the fashion company, said that it was moving 45 percent of its production out of China to other countries in anticipation for these tariffs. So if you are a company that is highly exposed to China, and that is why I called out Five Below, Crocs, Skechers, American Eagle, that's what Bank of America highlighted those as particular retailers that have an especially high risk because they are exposed to China compared to other retailers that have less of an exposure to China.

21:37Then you're going to start to see some winners and losers. And there's also the question of scale. Walmart and Amazon are probably going to be okay because they can eat those profits. They're big enough to accept that profit hit, whereas a smaller retailer might not be able to have to pass along those costs to consumers, raise prices, people buy less from you. They go back to Walmart and Amazon. So it could lead to a getting richer kind of situation. Yeah, analysts have said that companies do try to employ this range of strategies to try to mitigate the effects that these import taxes will have.

22:12But unfortunately, the general consensus was that there are no great tariff mitigation strategies. The challenge is to find one that is least bad. So I think that is kind of the approach a lot of these companies are taking to these potential tariffs. Think about a dollar store. Those were some of the two worst stocks yesterday, Dollar Tree, Dollar General. You sell something, that's your whole value proposition, that you sell something for, I think it's$1.25 now, and you just can't raise prices. So your business and your profitability is going to get a hit from tariffs. All right, let's sprint to the finish this Friday with a sweep of some more headlines.

22:46Have you ever taken medicine to help out with your cold and found it doesn't work? Well, turns out it actually doesn't work. Yesterday, the FDA proposed removing a common ingredient in over-the-counter cold medicines after a review found it was not effective. The ingredient, phenylephrine, has long been a staple ingredient of products like Tylenol, Mucinex, and Benadryl. But when taken in liquid or pill form, it doesn't do anything for nasal congestion. Yeah, this is making people who constantly have a stuffy nose feel very justified right now. So the history of phenylephrine is very interesting because it got FDA approval back in the 1970s, but it really jumped in popularity in 2005 because this legislation moved a similar decongestant, pseudophedrine, which in large quantities, if you've seen Breaking Bad, people know that it can make methamphetamines.

23:36That was removed from shells, so then all of a sudden phenylephrine was kind of thrust into the spotlight, even though for a long time scientists have kind of said, we're not really sure if this works. It now looks like finally the FDA got its ducks in a row. And so, yeah, if your nose has been stuffy and isn't going away, now you know why. ChatGPT might be dropping the GPT soon. OpenAI founder Sam Altman tweeted out a link this week that simply reads chat.com that redirects to its company's chatbot. Chat.com is actually one of the oldest domains on the internet registered all the way back in 1996.