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Trump may have just flipped the bird at Powell by slashing interest rates

Brian Sozzi
Editor-at-Large

Well, President Donald Trump got his interest rate cut... sorta.

Trump warned on Twitter over the weekend that tariffs on $200 billion in Chinese goods could rise to 25% on Friday. He added that a 25% tariff will soon be assigned to a selection of $325 billion in presently untaxed goods.

The proclamation uprooted the latest push higher in stocks globally, with the bellwether Dow Jones Industrial Average losing more than 400 points early on in Monday’s session. But, the yield on the 10-year Treasury note dropped to 2.48% as investors flocked to the government-backed safe-haven. The 30-year Treasury yield — which mortgage rates are often pegged to — dropped to about 2.9%.

Treasury prices move inversely to yields.

Data from Tradeweb show longer-dated Treasury yields are at their lowest level in a month.

So, in effect, with a series of tweets the president managed to make it cheaper — at least for the short-term — to take out a mortgage or buy stuff on variable rate credit cards.

Smooth, prez... even if it comes at the expense of those heavily invested in a stock market near record highs.

“He got what he wanted on rates,” AGF Investments Chief U.S. Policy Strategist Greg Valliere told Yahoo Finance Monday.

Trump has made his views on Federal Reserve Chair Jerome Powell no secret.

In the president’s mind, Powell’s interest rate hikes in 2018 slowed down an economy benefiting from his corporate and individual tax cuts. And in turn, that led to a bruising stock market slide in fall 2018 that by many measures hurt the U.S. economy.

Trump has been adamant — often turning to Twitter to voice his displeasure — that with muted inflation the Fed should cut interest rates to stimulate economic growth. Instead, the Fed has reiterated its independence from political rhetoric and promised to stay “patient” with respect to future policy changes. That promise of patience has led to a rebound in the stock market from the December lows.

“Absolutely, 100% we respect the independence of the Federal Reserve,” White House Chairman of the Council of Economic Advisers Kevin Hassett said last week on Yahoo Finance The First Trade.

Perhaps. But per the usual with Trump, he may have found a loophole.

Brian Sozzi is an editor-at-large and co-host of ‘The First Trade’ at Yahoo Finance. Follow Brian Sozzi him on Twitter @BrianSozzi

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