249 AUDIO FINAL
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[00:00:00] Welcome back to the What podcast. I'm your host, Quinton Harris, and it is good to be back in the studio this week. I was out last week doing some business travel, so great to be back here, and they dialed in for episode 2 49. So in this episode, shadow Fed. Powell versus Trump. Can we all just get along?
All right, so welcome back. So just to kind of paint some perspective, Jerome Powell is in office until May, 2026. Now we know that right now Powell and Trump are not getting along and it couldn't be more obvious. So I remember when Trump was, you know, put into office. I thought there was this notion that maybe they could work it out right?
And what I mean by this is before Trump came into office, I specifically went to our podcast and I was like, these two are not, it's just not gonna work out. And then there was this move where Powell kind of played nice with the media and also with Trump as if like they were working together and forming a relationship, which was clearly a just a smoke signal, a classic fed move there because now the outward animosity spewing [00:01:00] over and you kind of see it.
And what I mean by that is this is like when I look at Trump, I think his last. Comments here recently to kinda show you the love hate relationship these two have, is that he literally said, I would love it if Powell would just resign. He's done a lousy job. Followed up with saying he just labeled the Fed chairs flat out stupid.
Just literally flat out stupid. And you know, and Trump is jumping up and down because he wants interest rates lower to stimulate particularly housing, which also stimulates a large portion of the economy. But the byproduct of that is that. As the Fed lowers the Fed funds rate, the National Debt Servicing payment goes down as well.
And even went as far as last week when Trump, you know, urged Congress when Powell went to, to, to the finance committee and testimony there that he wanted them to literally like beat on him. Verbally about why he hasn't lowered rates. And you know, if it was up to Trump, he would say, right now I want a 1% rate cut and obviously, excuse me, a 1% being the Fed funds rate, which we can't do, we can't get to 1% fed funds rate.
But I think that's just kind of, you know, that's a very ology there to kinda use such an extreme there. But the reality is that [00:02:00] what a lot of presidents will do is they'll already kind of figure out the predecessor of who that Federal Reserve chairman is gonna be. It's usually like a six month window, but.
We're looking at it kind of unravel in like a 13, 14 month window and there's a lot of people that think that started in April, and I would probably agree, maybe even say it's starting definitely right now. So what is a shadow fed? Well, it's exactly how it sounds. It's another version of the current Federal Reserve looming and operating in the background to the current Federal Reserve.
So when that person asked me. Hey, what do you think the rest of 25 looks like? I kind of had to analyze like, well, what's the shadow Fed's mindset here? And a shadowed is where the president maybe has tapped a couple of people and said, Hey, listen, I'm thinking of you as the next Federal Reserve chairman.
But he's clearly gonna point to someone that has the same philosophies and also sees things the way that he wants 'em seen to help better his administration and get things done. 'cause see, Trump's argument is, Hey, why don't we just lower the Fed funds rate? Let's get it down to [00:03:00] below. A three and a half, let's get to three and a quarter.
Hell, let's get it to three. And if the economy starts to take a turn for the worst, inflation starts to rear its ugly head. You guys meet every six weeks, you can turn around and raise it again. Right? So his point was, why? Why wait and stretch this thing all the way out? Why not go ahead and give back some help that we need right now in the current economy?
And again, from just a logic standpoint, you may not agree with all of Trump's policies, but that logic could make a lot of sense and could help a lot of Americans. So if you look at some of the people that Trump's kind of tapping there, right? There's a lot of rumor mills on this, but my take of this would be Waller, I think Chris Waller, you know, governor Chris Waller.
He is a Fed member right now, voting member. He's been the most outwardly speaking person. Since he got on the board. And I think that's really important. 'cause when you look at a Shadow president, or excuse me, a shadow fed, the whole purpose of the shadow Fed is to basically undermine the current Federal Reserve and create their own policy while the current fed's trying to [00:04:00] carry out their own policy.
And so when you look at this, the main objective is that is for basically this Trump appointee, if you may. This silent shadow appointee is to communicate the market. That sends significant changes to what's currently going on out there. Basically, as they assume their role, they're going to communicate the way they see things and the way they want things.
So if you look at some of the people they're saying may be the person, right? They're saying it could be former Fed Governor Kevin Warsh. It could be the National Economic Council Director, Kevin Hassett. It could be Chris Waller, like I just explained. It could also be Treasury Secretary Scott Beson, you know, and if you look at the two most outwardly spoken people on that list.
It would be Chris Waller and it would be Scott Besson. Both very outwardly spoken, both complimentary of the current administration. Both agree that the tenure treasury, as well as the Fed funds rate needs to come down. And so what's interesting is what does that mean for the future of mortgage rates?
Well, let me kind of consider some scenarios here, right? So as we go into this, as I was saying, the main objective for them is to [00:05:00] create their own. Basically narrative of how they wanna see things, which undermines the influence of the current Fed, and it's expected to carry out some sort of initiative.
That's why they're doing it right? So Trump wants a dovish Federal Reserve, right? He wants someone to give forward guidance to where the bond markets feel very comfortable and they know what's coming, so therefore they can make the appropriate trades and thus driving down the bond market yield, thus giving a lower 10 year interest rate, thus giving lower mortgage interest rates.
That's what he wants right now. That's not what's been happening over the course of the last really 26 months. You know, we've done multiple episodes where it's like one side of the fed says one thing, then someone else comes out and says another, and they say something else. Again, it's been confusion at best.
And investors don't like that. They want consistency. They don't like surprises. So that's what's also hurting the bond market on there. So anytime that you see a Fed Chairman that's getting ready to be replaced, the question is. What's the next policy holders, you know, fed chair's placement gonna look like?
Well, I think if you put Governor Waller in there, [00:06:00] what you're going to see is someone that has come out several times and says, Hey, listen, we are way behind the curve, meaning we do not need to be sitting on interest rates the way we're doing right now, and just hitting pause like we should have been cutting months ago.
That's sign number one. The other thing is he says, listen, our job right now is to have two mandates, right? It's in it's inflation and it's labor right now. So right now it's labor over inflation. It's been that way for quite some time because the labor market, even though the Fed has indicated, is getting tougher.
And they're saying the job markets hasn't cracked yet, but it's starting to show signs of weakness. He's saying, why wait for the darn thing to break? Why wait for the dam to to bust open? Let's go ahead and start fixing it now before the, it's too late. Right before the labor market does crack. Before we do have a problem, and we're already seeing the Federal Reserve.
Multiple members come out behind Chris Waller and start kind of saying, yeah, maybe. Maybe we do need to look at that. You know, even Neil Kashkari has said, listen, maybe we do need to look at further rate cuts going into September. You're having multiple members come out and you kind of have a split side.
Now you kind of have seven [00:07:00] voting members that are all kind of saying, maybe we should start looking at rate cuts. Maybe this is something that's interesting and what I think you're starting to see is a divided fed because. You're having a term change, right? And when you have a term change, new leadership comes in.
I mean, even if you're owner, think about your own employment. If you got new leadership coming in, it's kind of uneasy, right? You got new leadership coming in, you're like, well, do I fall in line? Is this gonna be the right job for me? No. I'm not saying with the Federal Reserve, it's like that. But the mindset, the psychology is like that.
And it's almost like, Hey, pick whose side you're on here, because things might get a little bumpy. And I do believe that Trump is doing this earlier than normal and on purpose. You know, I go look at some of the moves that he's made while in this administration. Let's just even go back to the tariff timeline.
Like, this is so interesting to me. So Trump's inaugurated, right? And then he drops these gonz tariffs on all the countries, right? Specifically China. And they go back and forth on this. And then during that time, they're gonna take place in April. The, basically the tariffs are hitting in April, and then we get to the April deadline and it's like, well, you know what?
We're gonna [00:08:00] back it up 90 days and you know, we will go tick for tack with China. They'll impose on us, we'll impose on them, and then we'll lower things down. But we'll give you a 90 day waiver until then. That's around today's date. I'm doing this podcast. And now they've already announced they're gonna back that back up to September again, so they're gonna give another extension of the timelines on there the entire time.
What else has been happening? Well, Trump has been doing some other bold moves, if you may. And some of those bold moves were directly, you know, up to Iran, right? Think about that for a moment. And Trump went from a guy that was saying a lot of things that people go, yeah, this is just Trump beating his chest to now it's like, oh, like now he's a man of action.
And we've seen it happen. And look at the 180 the UN has done. Look at the 180, the G seven has done. What's interesting here is look at all the people coming back to the table now in support of him. Probably gonna get what he wants in these tariffs too, not because of, you know, threats of war, but because he's doing things and taking actions and getting results that other countries have not seen the United States do since the [00:09:00] seventies.
And because of that, some of these challenges that he's issued to other countries about, Hey, listen, defense spending, I wanna see more of it. You're starting to get it. Hey, we are gonna put tariffs on you if you can't do better trades with the American people. You're getting that now, and I think what you're gonna see is a cooperative Federal Reserve as well.
Again, it's not because of the war thing. That's not what I'm saying. I'm saying you're saying something and now you're doing it right. Hey, we're gonna put tariffs on you. And he did it right and he told him he was gonna do it, and he did it. So it's a situation where I think his actions are matching his words right now, and you're starting to see results.
So what does that mean for the Federal Reserve? What does it mean for mortgage interest rates? Today's episode is brought to you by Tana Bank Mortgage. They're coming to the table with a revolutionary product. It's called Relo Real Estate Mortgage Loan Officer. And what they're doing is they're taking real estate agents and they're taking loan officers, and for the first time in history, they're putting 'em together under one umbrella.
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So if you're ready to adapt and thrive, go to ask about relo.com. Let's ask about REML o.com. Getting back to that, I just wanna draw a time like I thought that was interesting. Right now we've got really the only economic indicator that's gonna come out between today's date, which is June 30th and. The Federal Reserve meeting is going to be labor data, and that starts to come out this week and next week, and that's what the fed's gonna have to go off and barring that's not just extremely weak and that we have countless Thursdays of job loss claims coming in, you're probably gonna see a fed divided again.
And I don't know that you're gonna get a rate [00:11:00] cut outta that. I do think you'll get one in September. 'cause it seems to be they're all on the same page for some reason in September to do that, maybe you could argue that's around the tariff deadline. Maybe you could argue they just wanna do the backup, wait and see.
But something about that tariff deadline that's kind of interesting to me is that if you look at the most recent surveys of a lot of business, a lot of suppliers, they're saying, Hey, listen, yeah, I know the tariffs came and they've kind of gone past, been suspended, but we have. We have a comfortable amount of supply, meaning that we're not too concerned about raising the price just yet because of a supply shortage.
Like we just don't wanna piss off the consumer anymore than what they currently are because there is some consumer, you know, anger out there. 'cause prices over inflation have gone up over time. But raising them again over a tariff situation, well that would just infuriate people and it's suppliers are saying we kind of see it unnecessary.
So you've got the Fed over here going, Hey, we just wanna see the impact that. The tariffs are gonna have on the supply chain and on the prices. You've got the suppliers saying, we don't see one right now. Those [00:12:00] two things aren't matching up, so maybe you get a cut in July. I doubt it. I think you're gonna get it in September here at this point.
But if some. You know, bad labor data comes in, unemployment rate jumps significantly. Job loss claims continue to go up significantly. Like, you know, we recently saw in a Warren report that's WARN, the Warren Report, where companies of a certain size that are gonna lay off. People have to warn in this report that they're going to do that.
Those counts were some of the highest counts we had seen since COVID. So that kind of indicates and gives you further belief that, wow, job losses are coming and what does that look like? Now we know those claims can be significantly modified based on are you getting a, you know, an exit package or some sort of, you know, monetary package as you leave.
But that doesn't always mean that's what's happening. But in most cases, larger companies, you do get that right. Well's. What's interesting about this with the concept of knowing that, hey, listen, the labor market cracks, right? We talked about dam breaking. You know that unfortunately this is kind of looming out there.
Then I go back to that question of, [00:13:00] Hey, what do you think the rest of 2025 looks like? I. I think there are significant concerns there. Concerns being the labor market concerns being kind of the pause that the consumer has hit. 'cause in the most recent PCE report, we saw consumer spending was down. We saw income was down, right?
So those things don't look good on paper and those are not things that we wanna see. We talk about growth and we talk about the economy. So what's one of the better ways to kind of help stimulate? Number one is confidence, right? Right. If you had a Fed that could actually come out there and say, Hey, this is what we're gonna do, here's our policy and we're gonna stick to it, barring any catastrophic event, this is what we're gonna do.
You know, and I think that would help consumers as well 'cause more confidence in the market, more foreshadowing of what's gonna take place is a good thing for the economy. Ultimately. Maybe housing's gonna get some love here because you know, recently in a very unusual announcement, Morgan Stanley came out last Wednesday that's on the 25th and said, Hey, listen.
We expect the Fed to have seven rate cuts in 2026, and we think that's gonna bring the rate down to two and a [00:14:00] half, to 2, 7, 5. So for the first time, it sounds like a very bearish economic take on the economy to have so many rate cuts in the forecast versus this bullish run we've been having. So what's interesting, and you know, I realize Morgan Stanley is not like.
The shadow fed, right? I realize they're not controlling interest rates out there, but that's a very bold announcement coming from a very powerful financial backing. And I think what's interesting about this is if you go back to Scott Besson, and we did a couple episodes on this, his target range for the 10 year treasury is 3.85 on today's date, like right now.
That's where he wants that. That's his, he said that was one of my sole jobs is to get that down. We're not too far from it. I think as I do this podcast this morning, as the markets are opening, we're at 4.22 on the 10 year treasury. That's one of the lowest. We've seen this year. Matter of fact, the spreads on the 10 year treasury and mortgage interest rates are better than they were even two years ago.
We're starting to see that become even at a year to date low, I think we're like a 6.7 ranging 6.7 to 6.875 on 30 year fixes. You're starting to see a year to date low on that as well. [00:15:00] So maybe housing's gonna get some love in this, you know. We haven't had a dovish fed report in quite some time, meaning they just really haven't shown any interest in boosting the housing demand at all.
Quite frankly, when asked about housing, Powell ignores it and says, that's not me. He doesn't say it this way, but he might as well be saying, that's not my concern, that's not my job. That's not what I'm here to protect. We have two mandates, right, and that is to make sure inflation stays at a level that we're comfortable.
In some reason, the target range is 2% on that. And then to a maximum employment. Right? And so the reality is none of that has to do with housing when he says that. But one of the largest employment sectors in the United States is housing, right? And the way that you get housing going through demand is to have favorable rates and favorable market conditions to where things can make sense for companies to borrow more money, create more jobs, build more housing.
Hey, people do more transactions, whether through refinance or purchasing of homes. That stuff makes the world go round. So to ignore it like that is kind of silly when he is asked about it. 'cause he's a smart man. Barring what Trump said, being stupid and stuff, I get that's childish, but he is smart, right?
And he understands that stuff. So to ignore it, that level seems kind of [00:16:00] silly and borderline disrespectful to the American public knowing how bad they need some of this stuff here, right? Because we've talked about the lock-in effect. We've talked about the amount of equity in homes. We've also talked about the credit card debt and some of the financial burdens that are illumining out there.
A lot of that stuff can get better if you just lower rates down. So one of the new possibilities for the shadow Fed is to discuss reviving the housing market. Maybe behind the scenes they're going, Hey, listen, we recognize. The obvious here, we need to get housing better. And one of those things is we need to start having rate cut.
So maybe that's conversations it's having about there. It would be a significant shift from the current Fed right now. Like I said, it was just ignored a weakness in this market for quite some time. And the weakness being in the amount of transactions that's taking place here, 'cause the price points aren't falling, they're not falling off a cliff, you know, they're not deteriorating to the point to where it's like, oh it's 2009 all over again.
Even though we know the doom and glimmers online wanna say that, but. A new policy would make a lot of American consumers happy, and it would be a big win for the Trump administration who's also could put the country in a better mood as well and boost the economy and build more confidence. So I do think [00:17:00] this shadowed brings things together, and I do think it's happening in the background.
I. Is it gonna take fa, excuse me, is it gonna take place by July or are we gonna see it happen in September in the form of that group getting together to kind of charge those interest rate cuts from the Federal Reserve? I don't know what. Stay tuned and see, but till then, we'll see at the next episode of What's your, one more guys.
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Appreciate you guys tuning in. We'll see the next episode at Watcher. One more. I got one more shot. I'm gonna make it one more chance. I'm gonna take it's time for me to do it. I got one.