WSJ What’s News - How Trump’s Desire to Influence the Fed Could Move Markets

Episode Date: August 9, 2024

A.M. Edition for August 9. Former President Donald Trump says presidents should have a say over how the Federal Reserve sets interest rates. WSJ editor Alex Frangos says those plans would blunt the central bank’s ability to fight inflation with often unpopular rate increases. Plus, Iran and its allies weigh how to strike back at Israel without igniting an all-out war. And, how the U.K. tackled anti-immigration riots and averted a night of far-right violence. Luke Vargas hosts. Sign up for the WSJ’s free What’s News newsletter. Learn more about your ad choices. Visit megaphone.fm/adchoices

Introducing TD Insurance for Business with customized coverage options for your business. Because at TD Insurance, we understand that your business is unique, so your business insurance should be too. Contact a licensed TD Insurance advisor to learn more. As Donald Trump says he's more qualified than Fed officials to set interest rates, we'll look at how he could reshape the central bank's traditional independence. Plus, how the UK put a lid on escalating riots this week. And the Paris Olympics may have started out on a rainy note, but the sun is shining as

they enter the home stretch. There was a lot of skepticism about how these Olympics would go, particularly from Parisians who fled the city in droves before the games started, but found that the atmosphere was so good, the vibes were so much fun, that they actually started coming back. It's Friday, August 9th. I'm Luke Vargas for The Wall Street Journal and here is the AM edition of What's News, the top headlines and business stories moving your world today. Donald Trump has shed additional light on what he sees as his role in weighing in on the Federal Reserve's interest rate decisions should he win election this November.

Speaking at a press conference yesterday, the former president said that his business experience made him more qualified to make monetary policy decisions than many Fed officials and he said that he thinks the central bank's decisions are based on little more than gut feeling. Alex Fragos is a journal finance editor. Alex, while Trump didn't explain in detail yesterday what kind of role he envisions for himself vis-a-vis the Fed, what stood out to you from his comments more generally? It's basically a confirmation of what a lot of people suspected, which goes back to his

picking of Jerome Powell when he was president, immediately regretting it and hectoring Jerome Powell for the remainder of his term over what he saw as bad monetary policy. And Trump's basically saying, give me a second chance and I won't make the same mistake twice. I'll pick someone who's going to consult with me, who's going to listen to me and do what I say because I'm really smart about the economy. And that has pretty profound implications for the Fed, which has this independence at the core of what it does and has for a number of decades to prevent precisely this sort of thing happening, which is presidents making political decisions about the economy instead of economic decisions. And this comes on top of comments that Trump made

several weeks ago, that any interest rate cut before the November election would amount to a gift to Democrats. The Fed, Alex, is already facing a delicate decision about what to do next, and this just adds another layer of sensitivity, doesn't it? Yeah, the Fed has said pretty clearly that it's gonna cut rates in September,

and that it is doing so for purely economic reasons, not having anything to do with the election. And it's a tough position for the Fed, because if they cut, it looks like they're being political. If they don't cut, it looks like they're being political if they don't cut it looks like They're being political Trump who usually likes lower rates doesn't want them to cut rates because as you said this looks like a gift to the Kamala Harris campaign because

People will see the rate cut and say oh my mortgage rates maybe start to come down and things are looking better So he's viewing it through the campaign lens. I mean if if that trend deepens, how could it rewire discussions around monetary policy? In the short term, it's going to have zero effect on the Fed. The Fed is going to do what it's going to do. And we saw that when Donald Trump was president. But the bigger implication is if Trump wins, markets will view the Fed's future moves in a different way. They'll say, well, probably they'll be more inclined to cut rates if Trump follows through on inserting himself in the process.

It's going to be in the president's interests for rates to be lower. So that could be viewed lots of different ways. One is that you're going to have structurally higher inflation because the fed is going to be less strict about raising rates when inflation is going up. So that tends to mean you're going to have higher bond yields, higher borrowing costs. So far markets are not overinterpreting these Trump comments because first of all he has to win. But if he wins, this sets up for the next day.

Market moves to be pretty big. That was The Journal's Alex Frankos. And in other news, moving markets today, shares in TSMC rallied in Taiwan after the world's largest contract chipmaker posted a 45% revenue jump for the month of July. Its US listed shares are also up in off-hours trading, along with other big semiconductor players including Nvidia, AMD, and Micron technology. Meanwhile, shares in China's largest chipmaker, SMIC, also rose sharply in Hong Kong on the

back of better than expected quarterly results. The company cited a gradual recovery in demand for consumer electronics that was boosting orders. And a day after Warner Bros. Discovery wrote down the value of its cable TV business, Paramount Global has followed suit, revising down the worth of its cable networks by $6 billion. Paramount, home to Comedy Central, MTV, and Nickelodeon, also said it will cut around 2,000 jobs to trim costs. Shares in paramount rose in off-hours trading. Coming up, sometimes what doesn't happen is just as newsy as what does.

We'll consider why Iran has yet to launch retaliatory strikes on Israel and look at how the UK prevented riots from escalating this week after the break. We reported yesterday that the Biden administration has warned Iran against a major attack on Israel, something that Tehran had signaled it might authorize in retaliation for the recent killing of a senior Hamas leader in the Iranian capital. But as the journal's Sunna Rasmussen reports, Iran and its allies are trying to thread the needle between hitting back at Israel and avoiding sparking a wider war. And I asked him what Iran's previous moves could tell us about their calculus this time

around. In April, when Iran responded to a suspected Israeli bombing of its consulate in Damascus, it sent 300 drones and missiles over Israel, but it also telegraphed that move in advance. So Israel knew they were coming and Israel, US-led coalition helped shoot down almost all of these weapons. So it's this weird attack where it was fireworks over Israel like we've never seen before but also it caused minimal damage so you're gonna have to come up with a response that doesn't look like a failure like the April attack did. At the same time

Suna said that any attack that takes Israel by surprise and causes damage could carry significant risk. Interestingly in July we saw a single drone flown from Yemen by the Houthis make it all the way to Tel Aviv and kill a person and injure several others. So Israel has shown some vulnerability to these kinds of weapons and Iran could probably conduct a smaller attack that causes more damage. But that of course also carries the risk that if Israel feels embarrassed and if the Israeli military is shown to not be able to protect its people, well then Israel is going to have course also carries the risk that if Israel feels embarrassed and if the Israeli military

is shown to not be able to protect its people, well then Israel is going to have to retaliate to that. And that's why this sort of cycle of violence is so dangerous. We go to the UK now, which has been roiled by violent riots sparked by false reports that the attacker responsible for the killing of three children last month was a migrant who had entered the country illegally. Britain had been bracing for another night of violence Wednesday, with far-right protesters promising to target asylum centers, law offices, and hotels used to house migrants across the

country, though in the end, violence was largely averted. Tens of thousands of counter-protesters took to the streets, outnumbering those on the far right. And as Journal UK editor David Luna told me, the British government also acted to tamp down the unrest. They fast-tracked prosecutions of some of the more violent offenders and made sure that they were swiftly prosecuted and got hard jail time,

most cases sort of two to three years of jail time. And then those cases were quite widely publicized by the government and by the media. So for instance, Thursday's cover of the Sun tabloid featured mugshots of protesters who got hard time. So that probably caused some people to think again about going out and looting and tearing stuff up. And I think a lot of ordinary Brits and the Muslim community also came out to the streets

and sort of said, hey, we're going to take back our streets. This doesn't represent who we are as a country. And that also helped. The UK government is also taking action against what it has called keyboard warriors, those inciting violence online, arresting the wife of a conservative party, local council representative who called for hotels housing asylum seekers to be burned, and a 53 year old woman who sent a message threatening to blow up a mosque. And finally, after a packed final weekend of competition, Paris will say

goodbye to the Summer Olympics on Sunday. Looking back over the last two weeks, Journal Sports reporter Joshua Robinson says that Paris has raised the bar for future host cities, including Los Angeles, which will take up the torch in 2028. One thing that was really a huge success here was this was an Olympics that fully leveraged its own public transit network.

Instead of relying on a network of special buses and vehicles, they funneled people through the metro, through the RER to venues, and broadly, it's been a huge success. We haven't had these major crowd problems getting in and out of venues. That's one thing that will definitely set down a challenge for LA, as we know, famously a car-driven city. One of the signature moments of this Olympics has been the opening ceremony. And what Paris achieved with that is blowing up the idea that this thing needs to be contained in a stadium.

And so in terms of creativity and pushing the boundaries on what's been done before, they've also laid down a marker for Los Angeles with that. With three days left to go, Team USA sits atop the metal table with plenty of gold, silver and bronze still up for grabs, including in the men's and women's marathon. The U.S. women's soccer team is going for gold against Brazil tomorrow, as is the U.S. men's basketball team when it takes on France. And that's it for What's News for Friday morning. Today's show was produced by Daniel Bach with

supervising producer Christina Rocca and I'm Luke Fargus for the Wall Street Journal. We will be back tonight with a new show. Otherwise, have a great weekend and thanks for listening.