This Is What Happens If Trump Does The Unthinkable...

Summary

In this analysis, the video explores the potential consequences of President Trump firing Federal Reserve Chair Jerome Powell and drastically cutting interest rates, possibly by 3% or more. The video delves into how such a move could impact various economic factors, including the 10-year Treasury yield, the dollar, stocks, gold, and crypto. While there's uncertainty regarding the effects, the dollar is expected to plummet, gold could skyrocket, and stocks, especially tech, could surge. The video also discusses the low probability of this happening, according to market expectations, but highlights the unpredictable nature of Trump's decisions.

Takeaways

• 😀 Trump is considering firing Jerome Powell, the Fed Chair, and has suggested interest rates should be cut drastically, potentially down to 1% or even negative.
• 😀 Trump's rationale for wanting lower interest rates is to make the U.S. more competitive internationally, comparing it to the ECB's lower rates.
• 😀 If the Fed follows Trump's suggestion and cuts rates drastically, it could create market volatility, but its effects on the economy remain uncertain.
• 😀 The 10-year Treasury yield could go up or down depending on how markets view growth and inflation expectations in response to a drastic rate cut.
• 😀 In 2024, when the Fed dropped rates by 1%, the 10-year Treasury yield actually increased, showing that the long end of the yield curve reacts differently to changes in short-term rates.
• 😀 A potential rate cut could make the U.S. dollar (DXY) plunge significantly, possibly entering the 80s or even 70s, due to the dramatic interest rate differential with other central banks.
• 😀 If the Fed cuts rates drastically, it could lead to a sharp rise in gold prices, with the possibility of hitting $4,000 per ounce.
• 😀 The stock market, particularly the NASDAQ, would likely surge if Trump’s drastic rate cut happens, possibly experiencing a parabolic rise.
• 😀 Bitcoin and other cryptocurrencies could also see massive gains, following the rise in risk-on assets like stocks and gold.
• 😀 While the market is not pricing in the likelihood of a Fed rate cut below 1%, Trump’s unpredictability means there’s always a chance such drastic moves could happen, even though they’re not expected.

Q & A

Why is Trump considering firing Jerome Powell, the Fed Chair?

Trump is considering firing Jerome Powell due to his dissatisfaction with the Fed's interest rate policy. Trump believes that lower interest rates give the U.S. a competitive edge and sees the Fed's current rate as too high compared to other central banks like the ECB.

What interest rate drop is Trump advocating for, and why is it significant?

Trump is advocating for an immediate 300 basis point rate cut, which would drop the Fed funds rate from 4.25% to 1.25%. This is an unprecedented move, far larger than any previous rate cut in history, and would significantly impact the economy and markets.

What could be the impact on the 10-year Treasury yield if Trump’s rate cuts are implemented?

The impact on the 10-year Treasury yield is uncertain. While it might drop, it could also rise, as seen in September 2024 when the Fed cut rates but the 10-year Treasury yield increased due to inflation expectations and growth concerns.

How does the yield curve react to changes in short-term and long-term interest rates?

The yield curve can become inverted when short-term interest rates are higher than long-term rates. In such cases, even if the Fed cuts rates, the longer-term rates (like the 10-year Treasury) may not drop in tandem and could even rise if the market anticipates inflation.

What could be the impact on the U.S. dollar (DXY) if the Fed dramatically cuts interest rates?

If the Fed cuts rates significantly, the U.S. dollar is likely to plummet due to the widening interest rate differential between the U.S. and other central banks like the ECB. The DXY could drop into the 80s or even the high 70s.

How would gold and cryptocurrencies respond to Trump's drastic rate cuts?

Gold and cryptocurrencies, especially Bitcoin, are likely to soar if Trump's drastic rate cuts occur. A significant weakening of the dollar would drive investors toward assets like gold, and cryptocurrencies would likely benefit from the same trend.

How might the broader economy react to such drastic rate cuts?

The broader economy's reaction is uncertain. While lower interest rates could support asset prices, it might not lead to substantial economic growth, especially if inflation and growth expectations don’t improve. The economy could continue to underperform despite rate cuts.

What is the likelihood of Trump’s drastic interest rate cuts happening?

The market is assigning a very low probability to Trump’s extreme interest rate cuts, with predictions mostly hovering around a 3.25% Fed funds rate by 2026. However, Trump’s unpredictability means it’s not entirely impossible.

What historical precedent exists for such extreme rate cuts by the Fed?

The most significant interest rate drop by the Federal Reserve was 1%, but Trump’s proposal to cut rates by 3% in one go would be historically unprecedented and would likely shock both markets and the economy.

How does the market perceive the future of the Fed funds rate, and what does this mean for Trump’s proposals?

The market largely expects a modest reduction in the Fed funds rate, with 3.25% being the most probable outcome by 2026. This low probability for extreme rate cuts suggests that while Trump’s ideas are extreme, they are unlikely to be realized as proposed.