Money Rehab with Nicole Lapin - Hot Take on Interest Rates & Why Trump and the Fed Are Fighting

Episode Date: April 24, 2025

The biggest feud on reality TV this week... is Trump vs Fed Chair Jerome Powell. The issue at the core of this beef? Interest rates. President Trump is pressuring the Fed to lower rates, but today, Nicole shares her hot take: we don't want lower rates.

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So if you've got a secondary property or an extended trip coming up and you need a little help hosting while you're away, you can hire eight co-hosts to do the work for you. Find a co-host at airbnb.com slash host. I'm Nicole Lapin, the only financial expert you don't need a dictionary to understand. It's time for some money rehab. Well, the biggest feud on Capitol Hill is not between Pete Hegseth and his own phone. It is between President Trump and Jerome Powell. President Trump has been playing both good cop and bad cop trying to get Powell, the

chair of the Federal Reserve, to cut interest rates. Trump has called J-Bow a loser. He said he can't wait until he was fired. But then just earlier this week, he said he had no intention of firing Jerome Powell. But while the markets and politicians are thirsting for lower rates, let's just take a beat for a second. Should we even want lower rates? On the surface, it's easy to see why lower rates are super sexy. Lower interest rates mean it costs less to borrow money. And that affects everything. Right now, the national average credit card

APR is sitting around 28%. That is a brutal, brutal rate, and it's part of why household debt is ballooning. Mortgage rates are still hovering around 7%, which is more than double what they were in 2021. So sure, lower rates will help you pay less for a home, for a car, for your startup loan, and everything in between. And investors eyeing growth and tech also love lower rates. Lower interest rates make future profits more valuable. And Wall Street loves that. If you have a 401k, an IRA, or even a self-directed brokerage account, you probably love that too. All of this sounds so great, right? So why isn't Jay Powell jumping to cut?

Well, because lower interest rates are not a magic bullet in the overall economy. They are a short-term high. And they come with some serious long-term side effects. Like inflation. And yes, sure, inflation has cooled off a lot since the insane 9.1% peak that we saw in June of 2022. But core inflation, that's the one that strips out food and energy, is still sitting north of 3%. That is a full point above the Fed's target of 2%. So if the Fed cuts rates too soon, it could undo all the work they've done fighting inflation. We've seen this movie before. In the 1970s, the Fed tried to bring down inflation but cave early. As a result, we got four recessions in less than a decade. That is not just a bad sequel. That is a horror franchise. Also, the housing story might not be a good one either. Lower interest rates

means more people can afford to buy. That means higher demand, which means higher home prices. This happened just a couple of years ago after rates were slashed during COVID. Mortgage rates, remember, dropped below 3% but home prices shot up by over 40% in just two years. So even if your monthly payment goes down, the price tag on a new house may just shoot up and price you out anyway. The federal debt story is a complicated one, too. You've heard me talk a few times on the pod about the theory that President Trump is using tariffs to put negative pressure on the economy so that the Fed lowers interest rates and the US can refinance its $36 trillion debt problem. And yes, lower rates would make that debt a lot cheaper to service.

But if the Fed slashes rates too aggressively, it can freak out bond investors who start to worry about the Fed panicking. bond investors who start to worry about the Fed panicking. That fear drives up the cost of borrowing longer term and can shake faith in America's creditworthiness. Which is not a vibe. Ok, last problemo, I promise. Lower interest rates also is bad news for savers. Right now we are finally seeing decent rates on high-yield savings accounts, averaging over 4% nationally. That is great news for retirees and anyone playing it safe. But if rates go down, so do those yields. And with inflation still above 3%, a 1% return on your savings account, remember those, can actually result in a net loss. That's what economists call a negative real return. And what I call? Rubbery.

And worst of all, if inflation comes back, they'll have to hike rates yet again. It's kind of this yo-yo policy that is exactly what causes recessions. So yeah, bullying Jerome Powell into cutting interest rates might feel good in the moment, Mr. President. But let us not forget, rock-bottom interest rates were never ever normal. Low interest rates were a shot in the arm. It was the drug the economy was on. In the years after 2008, I remember those years, well, we almost saw an apocalypse. Then we became junkies for these low interest rates. And then we went to rehab. And now we are itching for another fix. But rock bottom interest rates are not normal. They are extreme measures. You don't give a patient morphine just for funsies. It's not a

party drug. You do it because there's a serious problem. There's serious pain. Do we want to feel that pain just to get a little high? I don't think so. So stay in money rehab, Washington. Stay in money rehab. For today's tip you can take straight to the bank. I'm budgeting a little extra cash to invest around the time the Fed meets next, which is May 6th and 7th. That's the Fed's next opportunity to change the Fed rate or keep it the same. No matter what J-Pow decides on, there will be an investment opportunity. If the Fed keeps the rate the same,

the stock market will probably react poorly, which is a buying opportunity from my perspective. Keeping a little cash on the sidelines for buying opportunities is also a powerful psychological trick to help you keep calm during market downturns. It helps reframe the whole thing of what could be seen as a negative or stressful moment into a positive one.

Money Rehab is a production of Money News Network. I'm your host, Nicole Lapin. Money Rehab's executive producer is Morgan Lavoie. Our researcher is Emily Holmes. Do you need some Money Rehab? And let's be honest, we all do. So email us your money questions, moneyrehab at moneynewsnetwork.com to potentially have your questions answered on the show or even have a one-on-one intervention with me. And follow us on Instagram at MoneyNews

and TikTok at MoneyNewsNetwork for exclusive video content. And lastly, thank you. No, seriously, thank you. Thank you for listening and for investing in yourself, which is the most important investment you can make.