Better Financial Health in 15 Minutes (or less!)

Market Mayhem: The Impact of Tariffs, Politics, and Fed Independence

• Stacey Hyde

Share episode

The financial markets have been experiencing dramatic swings lately, leaving many investors confused and concerned. What's driving this volatility? It all started when comments about potentially firing Federal Reserve Chairman Jerome Powell sent markets tumbling, highlighting the critical importance of Fed independence in our financial system.

At the heart of this turmoil lies a fundamental tension between politics and economic policy. The Federal Reserve operates with a dual mandate - maintaining full employment while controlling inflation. Since recognizing inflation wasn't just a temporary post-pandemic phenomenon, the Fed has aggressively raised rates, creating friction with an administration concerned about consumer costs. This standoff between government priorities and central bank independence has markets on edge.

Proposed tariffs have further complicated the situation. While the idea of manufacturing more products domestically sounds appealing, the reality is more complex. Many goods are imported because they're produced more cost-effectively overseas, even after shipping costs. Some products - from semiconductors to certain agricultural goods - simply can't be manufactured domestically at the scale we need. Our global supply chains have evolved to optimize efficiency and keep consumer costs down. Disrupting these networks through significant tariffs would ultimately function as another tax on consumers, driving prices higher at a time when many households are already feeling financial pressure.

The market's wild swings reflect this uncertainty. As headlines change and statements get walked back, prices fluctuate dramatically. The wisest approach? Don't get caught in the daily noise. Markets react and overreact to news, often reversing course quickly as new information emerges. Focus instead on your long-term financial goals and remember that throughout history, markets have always faced periods of uncertainty - and have consistently demonstrated resilience over time. Have questions about how these economic forces might affect your financial plan? Reach out today for a conversation about navigating these challenging times with confidence.

Envision Financial Planning. 5100 Poplar Avenue, Suite 2428, Memphis, TN 38137. (901) 422-7526. This communication is strictly intended for individuals residing in the United States. Advisory Services offered through Envision Financial Planning, a Registered Investment Adviser.

Speaker 1:

Hi, I'm Stacey Hyde and I'm back for another episode of Better Financial Health in 15 minutes or less, and today I'd like to talk a little bit about tariffs and about why they are causing so much mayhem in the markets, causing prices to rise, and how the stock market has reacted. You know, negatively, positively, and what's going on, and, as anything that might be said about future performance in the market, I'm going to make some statements. But I don't know, and, quite frankly, none of the talking heads on TV or the radio or any podcast, instagram, tiktok, nobody really knows. It's all an educated guess, but what we've seen this week and by this week I mean the week of April 21st through the 25th we're sitting right in the middle of it. As I record this, markets were down a lot on Monday and the big sort of impetus for that was President Trump saying that he was going to fire the Fed chairman, jerome Powell. And the reason the markets reacted so negatively is the Fed has always kind of operated independent of politics.

Speaker 1:

Yes, the Fed chairman is an appointed position, but then they're really sort of insulated and they make policy decisions based on a couple of things One, they're trying to maintain full employment, and then they also are trying to prevent inflation Because, as we are all very well aware right now, inflation causes the cost of goods and services to cost more and your savings to be worth less. So inflation is generally bad when it comes to the cost of goods, and so that's a dual mandate that the Fed has. Prior to last year 2022, the Fed really focused on the full employment mandate, especially coming out of COVID, and inflation really got out of hand, quite frankly, and so the Fed has been very disciplined. Once they decided that it was a problem it wasn't just temporary they got very aggressive about raising rates and the Fed has continued, with inflation really picking up, has really focused on that more, and that has angered the administration because, with the tariffs, one of the concerns is it's going to raise prices to consumers, because a lot of the reason that things are imported from other countries or manufactured in other countries is because they can be done less expensively, even after factoring in shipping costs, than if they were manufactured here in the US. Or in some cases, they can't be manufactured here Think or not currently and it would take many years to build the factories to do it. Think semiconductor chips, making clothing, that sort of thing would be very difficult for those to be made in the US.

Speaker 1:

You also have sort of a friend I was talking to. She imports food goods and she was saying that you know they need a lot of little tangerines for school lunches and that sort of thing. She's like we can't grow enough of them here in the US and so there's things like that. Sometimes it's climate, sometimes it's just not enough people to work the fields or enough real estate to plant as many different crops as we need to grow the things we need to consume and to have healthy diets. So that factors into it as well. So there's a lot of reasons that we don't get everything from the US.

Speaker 1:

Do I think that it would be better if we did make more stuff here? Absolutely. But if you look at the auto industry for one, many cars are manufactured here, you know, put together. We were just last week we were down in Mississippi and there's a huge Nissan plant and they assemble a ton of Nissan cars, which is a Japanese company but they're putting it together in the US. But pieces of that car, you know, components of the engine, components of the seats, some of those are coming from Mexico, some of them are coming from Canada and then they all come together to make a finished product in the US, and so I think that's where people have gotten understandably nervous about we can't make all of these parts, and it made more sense to sort of spread out our supply chain where we could do it the lowest cost, because that, quite frankly, kept the cost to consumers lower.

Speaker 1:

So that's really, I think, got the markets worried about inflation and the Fed worried about inflation. The administration wanted rates to be lower, because then that keeps the perception of cost. So the houses, like they were several years ago, the houses might cost more, but because interest rates were lower, the cost of financing it was lower. So if costs go up and rates stay the same, payments continue to go up and people are feeling the pinch, like most people are right now. So there's you've really had the administration at loggerheads with the stock markets, which are, you know, making reasonable guesses about what they expect to happen, and also the Fed kind of looking out for all of us, trying to make the best decisions they can, with imperfect information as well, and so that angered the administration. There was a threat, a perceived threat, by Trump to fire Mr Powell and over the last couple of days he has walked that back and said he's not going to do that. The markets have reacted very favorably to that and they've really kind of picked up if not almost all of their losses from this week. But we continue to be significantly down certain sectors more than others this month, and understandably that's got people worried.

Speaker 1:

Do we know how this is all going to play out ultimately? No, some people guess that it's all a negotiating tactic. Some people say that you know they're committed to it. But what I personally hope happens is that it does spur some companies to start doing more here. But and maybe we have some very low tariff and we maybe exclude our friends you know, like mexico and canada, that we share a border with and where we have all benefited from some free trade there and maybe add in some small tariffs on countries that also charge tariffs to us and that could potentially be seen as taking advantage of the US.

Speaker 1:

But I don't think these draconian, dramatic tariffs are ultimately going to be good for the economy. There's all kinds of different opinions out there about what the negative consequences are going to be of that, but in all cases, a tariff is another form of tax and ultimately, I believe, it'll be paid by consumers consumers and so that is going to raise the cost if they're not mitigated and mitigated soon, because markets don't like uncertainty any more than you or I do. So I don't know that I've answered any of your questions, other than just trying to lay out what's out there and why the markets have reacted so crazily over the last few days and why things tend to jump one way and then the other Markets are just reacting or overreacting to news. So try to stay calm. Do not get caught up in the noise of the day-to-day, because the way it's going right now it's likely to change tomorrow. So, um, the old stickers used to say stay calm and carry on. This has been another episode of better financial health in 15 minutes or less.