Sayonara, Trump Tumult! New Era, New Approach to Rates
Trump Administration Cabinet Member Offers Pathway to High Yields and Significant Growth
Let's face it, folks, Trump 2.0 sure ain't Trump 1.0! One keen difference continuously undermined is the sharp about-face regarding Jay Powell, Federal Reserve Chair.
Remember the 'good ol’ days' of Trump 1.0, when the relationship between Trump and Powell was a hot mess? The public tirades, the criticism over rate hikes, and the disdain for Powell's leadership – that was all Trump 1.0.
So what's changed now? Well, let me tell you, crickets are chirping instead of Trump's tweets, and a noticeable contrast to his past behavior is now evident. Looking back to 2018, Trump was quick to belittle Powell for the Fed's failure to lower rates as much as Trump desired, referring to the Fed Chairman as having "no sense, no guts, no vision." Fast forward to 2023, and Trump has shifted his stance, even hinting at allowing Powell to serve out his term which ends in 2026.
Steady 'Long' Rates on the Horizon
The secret to Trump's new attitude towards interest rates lies in the hands of Treasury Secretary, Larry Bessent. Here's why.
Bessent, a former hedge fund manager, has openly emphasized the importance of the 10-year Treasury rate, rather than the short-term rates primarily controlled by the Fed. Bessent's strategy aims to bring down the 'long' rates – and by extension the interest rates on consumer and business loans – through:
- Tariffs: Despite common misconceptions, tariffs do not drive rampant inflation; instead, they act as a drag on economic growth.
- Drilling: Reducing energy costs via increased drilling for oil and gas.
- Deregulation: Boosting productivity and lowering costs for businesses by easing regulations.
A Sagging Labor Market Joins the Fray
Another factor contributing to the expected drop in long-term interest rates is a prevailing softening in the labor market. This softening in part stems from the Dogecoin (DOGE) phenomenon creating a surge in layoffs, with the number of layoff notices issued in February 2023 jumping 245% from January, reaching levels not seen since June 2020.
The 10-Year Adapts to the New Regime
The 10-year Treasury has responded to these changes, with the rate now down significantly since Bessent assumed office. However, it's essential to note that this drop is not solely attributed to Bessent's policies; signs of a slowing economy have also contributed to the fall in 10-year Treasury yields.
In conclusion, the narrative that tariffs result in an unending cycle of inflation has been debunked. With the 10-year rate poised to drop, along with the potential for the Fed to follow suit, the upcoming shift to lower rates might occur faster than people realize.
Stay tuned for investment opportunities surfacing as interest rates fall! The attractive 13% dividend yield from the PIMCO Dynamic Income Fund (PDI) – managed by renowned bond expert Dan Ivascyn – will likely gain more attention as rates descend. Plus, utility stocks like Dominion Energy Inc. (D) – a pick from my Contrarian Income Report service – still have room for substantial growth as rates drop, offering steady yields to income-hungry investors.
As always, happy investing!
Disclosure: I am/we are long PDI, D
Here are three sentences from the text that contain the given words:
- "Treasury Secretary, Larry Bessent, has openly emphasized the importance of the 10-year Treasury rate."
- "The 10-year Treasury has responded to these changes, with the rate now down significantly since Bessent assumed office."
- "The attractive 13% dividend yield from the PIMCO Dynamic Income Fund (PDI) will likely gain more attention as rates descend."