WSJ What’s News - Markets Defy Predictions in Trump’s First Month

Episode Date: February 21, 2025

A.M. Edition for Feb. 21. WSJ finance editor Alex Frangos explains why expectations that President Trump’s policies would further strengthen the dollar haven’t panned out so far. Plus, Senate Democrats use a budget vote to make Republicans squirm. And WSJ housing reporter Rebecca Picciotto says we’re headed toward a landlord-friendly era… expect higher rents. Luke Vargas hosts. Sign up for the WSJ’s free What’s News newsletter.  Listen: The Hardball Tactic Landlords Use to Tank Your Credit Score  Learn more about your ad choices. Visit megaphone.fm/adchoices

This is Carry the Fire. I'm your host, Lisa Laflamme. Carry the Fire, a podcast by the Princess Margaret Cancer Foundation featuring inspiring personal stories about what happens when world leading doctors, nurses, researchers, and their patients come together to ignite breakthroughs. Carry the Fire launches Monday, January 27th, wherever you get your podcasts. Senate Republicans advance their budget blueprint after Democrats stage an overnight amendment marathon. Plus, Finance Editor Alex Frangos explains why markets performed in unexpected ways during President Trump's first month in the White House and America's apartment glut dries

up raising the prospect of higher rents. Renters could feel a bit more pressure in their budgets and they should definitely expect competitiveness in the rental market to heat up. It's Friday, February 21st. 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. Senate Republicans have passed a $340 billion budget blueprint that would eventually fund new spending for border security and the military.

That followed an all-night fight with Democrats, who proposed a number of non-binding amendments meant to put Republicans on the record on a range of issues. Democratic Minority Leader Chuck Schumer. We will have late nights here on the floor exposing Republicans' hypocrisy on health care, on national security, on job creation, on inflation, and most of all, on where their main focus is, their North Star. Tax breaks for their billionaire buddies." Democratic proposed votes relating to housing, energy costs, and blocking tax breaks for

the wealthy were defeated along with measures to reinstate some fired government employees and ramp up support for Ukraine. The framework approved this morning sets up a process known as budget reconciliation, which would enable the chamber to bypass filibuster rules and allow Republicans to pass Trump's fiscal agenda later this year with a simple majority. Turning to the Middle East now, Israel says one of the four bodies that Hamas turned over yesterday isn't that of a mother who was kidnapped with her two young sons.

The Israeli military said that it had informed the Bebas family that the bodies of two boys which were also handed over yesterday had been identified, but that another body Israel received didn't belong to their mother, nor did it match any other hostage. The Israeli military said Hamas is required to return four dead hostages under the Gaza ceasefire and called the incident, quote, a violation of utmost severity. A Hamas spokesman didn't respond to a request for comment. It has been just over a month since President Trump's inauguration.

In the lead-up to his taking office, a number of economists predicted that Trump's economic policies would continue to fuel the dollar's strong run, as well as the outperformance of the U.S. stock market. But as journal finance editor for Europe Alex Frangos told me, that's not how month ones unfolded. In the first month we've seen the dollar weekend. US stocks are up but not as much as stocks in Europe, which is surprising to a lot of people.

I think it's partly a situation of it's only a month and sometimes markets take a long time to digest big changes in policy and partly it's traders were bidding up these things going into the administration. Basically everyone thought there was going to be big tariffs. There's obviously been a lot of talk about tariffs, but his first move with Canada and Mexico was, you know, oh, we're going to slap these huge tariffs, but then said, we'll give a delay. And so the market's basically interpreted that the whole tariff thing is a negotiation

ploy and not a permanent fixture of economic policy. Alex, over on the issue of currency, President Trump has long complained about the strength of the dollar. And I'm curious, given his focus on closing the U.S. trade deficit and helping domestic manufacturing, is there a sense, maybe among market watchers, that he might try to take some steps to actively weaken the greenback? It's really hard to move what's the most traded asset in the world, which is the U.S. dollar. There's policies that they can take that will over time weaken the dollar, but it's unclear

that what they've done so far should do that. I mean, tariffs in general, we would expect the dollar to strengthen. What's much, much more important is what the Fed does. And if the Fed reacts to tariffs by keeping rates high, that'll keep the dollar strong because the higher rates are in the US, the more people want to hold US dollars because they're getting paid more in their savings or owning a bond or whatever it is. So it will take months, if not years before you would see the desire of the president to have a weak dollar make the dollar weak. It's just not something you can snap your fingers and do.

Right. So how should we interpret the dollar's recent moves then? I think what we're seeing with the dollar weaken a little bit in the first month of the administration is one, the sense that the Ukraine war, there might be a pathway to ending, which is good for Europe. And so the euro has strengthened a little bit. The Japanese yen has strengthened because the sense is the Bank of Japan is gonna raise interest rates. They have inflation in Japan for the first time in a long time. So there's a bunch of things going on outside.

And then again, the sense that the tariffs are maybe more of a tactic and a bluff than a permanent thing, that's colored people's expectations of where the dollar should go. That said, the broad dollar measured against a basket of currencies is down 1.6% in the first month of the Trump administration. So let's not get overexcited. That was the Journal's Finance Editor for Europe, Alex Frankos. Egg companies are calling for a stronger government response to a bird flu outbreak that has sent egg prices soaring, asking regulators to greenlight a vaccine that could be given

to chickens on farms. But meat processing companies, including Tyson Foods, Pilgrim's Pride, and Purdue Farms, say bird flu vaccinations could have a devastating impact on their export business worth roughly $5 billion annually. According to officials, if the U.S. started vaccinating flocks, other countries would cancel orders and each nation would need to sign off on the American vaccination strategy before resuming purchases. Last week, the Agriculture Department granted a bird flu vaccine a conditional license, but it hasn't been authorized for use on farms and poultry producers can't buy it. The department says it plans to roll out a

strategy to fight the disease in the coming days. And in business and markets news, shares in Nissan Motor jumped in Tokyo today after the Financial Times reported that a high-level Japanese group is planning to approach Tesla for an investment in the struggling carmaker whose merger talks with Honda fell apart just days ago. Earlier today, credit ratings agency Moody's cut Nissan's debt rating to junk status. Meanwhile, Hong Kong listed shares in Alibaba jumped nearly 15 percent after the company said its AI strategy helped to drive revenue growth in the third quarter, sparking a Chinese tech stock rally.

And on deck today, home sales figures are set to be in focus when the National Association of Realtors releases data for January at 10am Eastern. Sales likely declined as home prices and mortgage rates stayed too high to attract buyers. And coming up, we'll look at the outgrowth of that trend, rising demand for rental properties that could send prices higher this year. That's after the break. Are you crushing your bills? Defeating your monthly payments? Sounds like you're at the top of your financial game. Rise to it with the BMO Eclipse Rise Visa Card, the credit card that rewards your good financial A spike in rents during the early years of the pandemic sparked a historic apartment

construction boom in 2023 and 2024, which led to oversupply and caused rents to fall in much of the country. But as journal housing reporter Rebecca Pichotto told my colleague Kate Bullivant, the era of falling apartment rents seems to be drawing to a close. So the oversupply that has been weighing down rent growth over the past few years, it's now getting absorbed into the market, meaning that those previously empty units in the Sun Belt, for example, are getting leased out to renters. Plus construction of new apartments is slowing down. And at the same time, demand for rentals is expected to stay strong, mortgage rates are still high, a lot of people are renting for longer.

So you put those two things together, slowing supply with growing demand, and you get a market where landlords could have a lot more pricing power than they did a few years ago. So how significant could these tariffs on Canada and Mexico be for the US? Roughly a quarter of US building material imports come from Canada and Mexico according to the National Association of Home Builders and undocumented workers make up about 13% of the construction labour force so the prospect of more aggressive tariff hikes and mass migrant deportations could really increase the cost of doing some of these projects. Some people listening to this might be thinking that rent prices are already high. What exactly should we expect here?

Right, I mean, it's worth saying that a lot of renters are still feeling the squeeze of the double-digit rent spikes that we saw in the early years of the pandemic. No one expects rent growth to hit that kind of record high level this year, and everyone has a slightly different estimate, but as one example, the real estate services firm CBRE projects that national rent growth will be at about 2.8% by the end of 2025. We might see more people start to sign multi-year leases

over the next few months to try to lock in the last remaining low prices. But on the whole, renters could feel a bit more pressure in their budgets and they should definitely expect competitiveness in the rental market to heat up. So I spoke to one renter in New York who submitted inquiries for about 60 apartments and often found herself waiting in line behind at least a dozen people. Those kinds of stories could become more common across the country over the next year. How could we see these higher rents kind of ripple across the economy? This could have real implications for the Federal Reserve's fight against inflation.

Shelter costs account for roughly a third of the overall inflation measure. So if housing costs stay high, that could make it harder for the Fed to meet its 2% inflation target and that might make the central bank more likely to continue to pause its rate cutting cycle. And if interest rates don't come down further, that certainly trickles across the rest of the economy. And finally, are there any political initiatives on the cards here to address this potential upcoming housing crunch? At the end of the day, housing is very much a locally regulated industry. So a lot of

municipalities are looking at new zoning laws, maybe faster permitting processes that make it easier and cheaper to build housing. On the federal level, there's certainly talk in Congress of trying to boost some of the tax incentive programs to help developers build more housing. But some lawmakers certainly see housing policy stuck in limbo given some of the other legislative priorities that have been on the agenda so far. That was Journal Housing Reporter Rebecca Picciotto. Rebecca, thanks so much for your time.

Thanks for having me. And for more on the US rental market, check out today's episode of our Your Money Briefing podcast where Journal reporter Caitlin Ostroff detailed a new strategy some landlords are embracing to tackle rental disputes targeting credit scores. We've left a link to the episode in our show notes, or you can queue up Your Money Briefing right now on whatever platform you're using to listen to us. And that is What's News for this Friday morning. Today's show was produced by Kate Bulevent and Daniel Bach with supervising producer Christina Rocca. And I'm Luke Vargas for The Wall Street Journal. We will be back tonight with a new show. Otherwise, have a great weekend and thanks for

listening.