The Next Fed Chairman
President Trump has a big decision to make. One that will affect you and the retirement plans for millions of Americans. One that could alter the landscape of our economy (for good or for bad) for generations to come.
I’m not talking about the tax bill or changes to the Affordable Care Act.
I’m not talking about military decisions with Kim Jong-Un or any other geopolitical flashpoints on his desk.
No, I’m talking about Trump’s decision on who to appoint as the next Chairman for the Federal Reserve.
Because while the other issues are certainly important, this one appointment could make the difference between millions of retirees on food stamps and other welfare programs, or a population of retirees who can generate the cash needed to pay for their retirement dreams.
The bad news is that I expect Trump to make a decision that will ultimately hurt retirees. That’s unfortunate and it will cause a lot of pain down the road.
But the good news is that you don’t have to give up your retirement dreams just yet. Because regardless of what Trump decides, you can still take control of your retirement and find new ways to generate income.
Let me explain…
Don’t Expect Rates to Rise Much Any Time Soon
There’s been a lot of talk lately about the Fed raising rates at its upcoming December meeting. At this point, the markets are pricing in an 80% probability of another quarter-point hike. So let me ask you this…
Are you looking forward to higher interest rates to help pad your retirement account?
Don’t hold your breath!
Despite the likely 0.25% hike in December, a growing pile of evidence is pointing to another year (or two or three years) of exceptionally low interest rates.
If you’re planning to finance a large real estate purchase or dealing with a significant amount of debt with variable interest rates, this may be a good thing for you. After all, low interest rates will allow Americans to borrow money and enjoy lower monthly payments.
If, on the other hand, you’ve worked hard to save for retirement and you’re now counting on your nest egg to pay for day-to-day expenses, the prospect of low interest rates is troubling.
That’s because you can’t earn much — even from a very large retirement fund — if you park your account in traditional savings accounts or Treasury bonds.
Why am I so sure interest rates will stay low for years to come?
Just look at the candidates President Trump is considering for the Fed chair position.
Trump’s Candidates Unlikely to Aggressively Hike Rates
Fed Chair Janet Yellen was appointed to a four-year term that started on Feb. 3, 2014, and will end on Feb. 3, 2018.1 It is up to President Trump to nominate a new Fed chair and up to Congress to confirm the candidate.
Trump is expected to make his nomination by the end of this month, in order to give time for Congress to question and ultimately confirm the new chair.
Unfortunately for savers, Trump has been very vocal about his support for a weak U.S. dollar. Which in turn means that Trump is in favor of low interest rates.
(Low rates naturally lead to a weak U.S. dollar, as it is less appealing for investors to hold dollars that pay low interest. The reason Trump is in favor of a low U.S. dollar is because a weak dollar makes U.S. exports more competitive.)
Earlier this month, Bloomberg published an article listing the front-runners most likely to get Trump’s nomination. Each of these potential Fed leaders appears very likely to keep rates exceptionally low.1
Let’s take a quick look at the individuals on top of Trump’s list:
Janet Yellen — Trump certainly has the option to re-appoint Yellen for another term. A few weeks ago, Trump publicly said that he thought Yellen was doing a great job. He mentioned that he liked the idea of a weak U.S. dollar and commended Yellen on having a similar mindset.
In recent comments, Yellen has expressed concern that inflation is not picking up alongside a growing economy. While a lack of inflation may sound like a good thing to you and me, inflation could actually help the federal government more easily pay back its debt.
(If you owe trillions of “weak” dollars instead of trillions of “strong” dollars, it’s easier to cover the interest on your debt.)
Based on these comments, it appears Yellen will keep any rate hikes to a minimum until inflation really picks up. So if Yellen is kept on for another term, I expect rates to remain historically low.
Gary Cohn — Cohn is Trump’s National Economic Council director and has been on the same side as Trump for a number of regulatory and financial issues. This makes Cohn a high-probability candidate, as Trump likely sees Cohn as an ally.
Cohn is probably even more unlikely to hike rates than Yellen, having been critical of Yellen’s gradual rate hikes over the last two years. His stance is that the Fed shouldn’t be hiking rates at all until inflation actually begins to pick up.
So if Cohn winds up being nominated, I wouldn’t expect retirees to be able to benefit from higher interest rates unless they’re also struggling with a truly inflationary environment.
Jerome Powell — Powell is one of the existing Fed governors and could be a great candidate for Trump to appoint simply because Powell is already fully up to speed on the Fed’s current policy. Bloomberg also stated that Treasury Secretary Steven Mnuchin is in favor of nominating Powell.
Powell has a history of keeping rates low and is somewhat of a “moderate” when it comes to rolling back financial regulation. That moderate stance could help Powell get through the confirmation process, making him an “easier” candidate for Trump to go with.
Now, there’s one additional candidate that Trump recently mentioned (in addition to these three).
John Taylor — This dark horse candidate had an interview with President Trump and is said to have made a favorable impression. Taylor is an economist at Stanford University and has published some interesting research on how the Fed needs to have more transparency (and less “unbridled Fed discretion”).
That type of perspective is likely to resonate with Trump, because if the Fed were to have less independence, it would naturally give other parts of the government (the executive branch as well as the legislative branch), more say in how the Fed steers our economy.
It’s not totally clear whether Taylor would be in favor of aggressively raising rates or not. But based on his ideals of a Fed with less unbridled discretion, it would make sense for Taylor to keep rates low to coincide with Trump’s ideals for a weak U.S. dollar…
Don’t Let Lower Rates Ruin Your Retirement
Regardless of who Trump appoints, it’s very unlikely that you’ll get to benefit from higher interest rates anytime soon.
That’s why it is so important that you find alternate ways to generate retirement income (without spending too much of your original capital).
Of course, that’s exactly what we cover here at The Daily Edge.
It’s my goal to show you how to generate income from the market so that you can enjoy a fulfilling and financially secure retirement.
I want to see you be in control of your retirement plans, instead of waiting to see whether you’ll be able to squeeze a few more dollars out of your retirement savings.
That’s why we constantly talk about alternative ideas for protecting your wealth and generating extra income.
Ideas like owning gold to help offset a decline in the value of the dollar.
Or buying corporate bonds at discount prices — to lock in guaranteed payments from America’s strongest companies.
Or selling put contracts on stocks that you want to own, to generate instant income payments that can be used to cover day-to-day expenses.
(Incidentally, while this may sound like a complicated strategy, it’s actually a very easy way to pad your retirement account. The process is so easy, even kids can do it as you can see here.)
I hope you’re using our research to collect your own income from the markets.
In today’s market, you simply cannot count on traditional savings accounts to generate the cash that you need. Who knows… At this point it looks like interest rates could remain exceptionally low for generations.
So please, make sure you are proactive when it comes to your retirement income. And if you’re doing well with your income strategies, I’d love to hear about it! Please send your retirement success stories to EdgeFeedback@AgoraFinancial.com.
With all of the negative news out there today, I look forward to hearing some positive developments from you.
I hope you have a great weekend!
Here’s to growing and protecting your wealth!