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Michael Thompson: Welcome to Ask Fear and Greed, where we answer questions

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Michael Thompson: about business, investing, economics, politics, and more. I'm Michael Thompson

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Michael Thompson: and hello Sean Ayleman.

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Sean Aylmer: Hello Michael, Sean.

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Michael Thompson: Great question today. It has come from Linda, who sent

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Michael Thompson: us this message via LinkedIn. She says, Hi, Fear and Greed,

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Michael Thompson: I absolutely love the show. I'm going to start with

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Michael Thompson: the praise first, if that's all right.

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Sean Aylmer: I love Linda.

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Michael Thompson: Yeah, she says, I absolutely love the show. I'm an

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Michael Thompson: avid listener. Often my husband will catch me laughing out

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Michael Thompson: loud as I do the housework listen listening to the show.

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Sean Aylmer: I hope that's the weekend edition and not the Mota

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Sean Aylmer: to Friday edition. Linda.

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Michael Thompson: I suspect it would be the weekend edition because otherwise

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Michael Thompson: we're supposed to be otherwise. But Linda goes on to say,

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Michael Thompson: I have a question about Trump's tariffs and interest rates.

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Michael Thompson: I would have thought that tariffs would drive up prices,

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Michael Thompson: which would drive up inflation. Then interest rates would need

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Michael Thompson: to rise, But it looks like everyone is saying the

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Michael Thompson: RBA will need to reduce rates because of slowing economic growth.

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Michael Thompson: I'm confused. That was Linda's commentary, but you know what,

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Michael Thompson: just I'll see put myself into that.

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Sean Aylmer: Lind is applying a bit of logic to economics.

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Michael Thompson: Yeah, this is the challenge is very very.

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Sean Aylmer: Silly, Linda, We don't apply it's a great question, like

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Sean Aylmer: it's a really fair question, because we keep talking about

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Sean Aylmer: tariff's pushing up prices, and of course when prices go up,

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Sean Aylmer: we know that central banks lift interest rates to try

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Sean Aylmer: and take the heat out of the market. What's happening

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Sean Aylmer: in this case is that the tariffs were much bigger

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Sean Aylmer: than everyone expected, and so all the commentary about broad

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Sean Aylmer: based and the minimum tariff, a country like Australia, which

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Sean Aylmer: actually has a trade surplace with the US, still being

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Sean Aylmer: hit with a ten percent tariff taily unfair, China fifty

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Sean Aylmer: four percent tariff really unfair. What that does is take

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Sean Aylmer: all the heat out of economic growth, so people have

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Sean Aylmer: to pay more. People can't mean Chinese or Vietnamese or

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Sean Aylmer: Cambonian don't sell as much stuff. So economic growth suddenly

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Sean Aylmer: slumps and potentially you get a recession that overrides the

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Sean Aylmer: impact of higher tariffs on inflation, because when you have

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Sean Aylmer: an economic slat awnd, people stop buying stuff and it's

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Sean Aylmer: not like they're not pushing prices up. It's kind of

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Sean Aylmer: which comes first, chicken over the egg. In this case,

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Sean Aylmer: it's the chicken, because economic growth takes the heat out

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Sean Aylmer: of the market, so people won't pay higher prices because

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Sean Aylmer: they can't afford it. And so all of a sudden,

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Sean Aylmer: what the Reserve Bank or the US Federal Reserve or

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Sean Aylmer: whatever central bank you want to talk about, they start

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Sean Aylmer: cutting rates because they realize they've got to get economic

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Sean Aylmer: growth going to put some more oomph into the market.

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Sean Aylmer: The secondary consideration then becomes in inflation. So in COVID,

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Sean Aylmer: after COVID, remember we know everything crashed, governments put huge

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Sean Aylmer: amounts of money in Inflation spiked, it took off to

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Sean Aylmer: seven percent or so. But actually just getting the economy

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Sean Aylmer: going again was more important, and we worry about inflation

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Sean Aylmer: down the track. It's like a mini version of that.

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Sean Aylmer: At the moment we worried about inflation. Worried about inflation.

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Sean Aylmer: Oh my god, these tariffs are huge. This is going

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Sean Aylmer: to stuff up the global economy. Let's not worry about

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Sean Aylmer: inflation now, let's get things moving and then we'll worry

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Sean Aylmer: about inflation.

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Michael Thompson: It's essentially a stimulus action to try to just get

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Michael Thompson: things moving. Do you remember it was a POSTGFC where

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Michael Thompson: the government at the time, and this would have been

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Michael Thompson: the labor government in Australia made and they even referred

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Michael Thompson: to them as stimulus payments just in order to get people. Yeah,

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Michael Thompson: get people spending. It was eight hundred dollars I think,

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Michael Thompson: or thereabout kind of per adult, just to get people spending,

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Michael Thompson: to get some movement, some life into the economy.

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Sean Aylmer: Eight hundred bucks doesn't sound like much, right, But if

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Sean Aylmer: I get eight hundred dollars and I go to a restaurant,

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Sean Aylmer: and I go to a clothing and I go to

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Sean Aylmer: the mall and buy some clothes and food and go

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Sean Aylmer: to the movies and spend my eight hundred bucks, then

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Sean Aylmer: the people at the movie cinema or the people at

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Sean Aylmer: the restaurant and the people they're getting more money, they oh, well,

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Sean Aylmer: I might spend that too, So there's this multiplier effect. Yeah,

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Sean Aylmer: so eight hundred bucks doesn't sound like much, but by

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Sean Aylmer: the time the shopkeepers spends it, and then whoever he

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Sean Aylmer: or she spend it on, they spend it and goes

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Sean Aylmer: on and on and on, and it is a great way.

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Sean Aylmer: So that they were the Trump numbers, sorry Trump apologized

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Sean Aylmer: to Kevin Rudd a long way from Donald Trump.

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Michael Thompson: I cannot think Kevin Rud would like being called Donald Trump.

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Sean Aylmer: He would not, but that that spending by Rudd really

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Sean Aylmer: really supercharged the economy. Yeah, okay, it's a great question

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Sean Aylmer: from Ninda, because we keep talking about tarist being inflationary,

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Sean Aylmer: and suddenly, just like that, we start saying, oh, rates

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Sean Aylmer: are going to get cut, and it's basically because of

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Sean Aylmer: the size of the tariffs.

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Michael Thompson: Okay, And the expectation is what for at least one

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Michael Thompson: rate cut in May most likely, and then potentially two

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Michael Thompson: more this year, or that's generally what economists are saying.

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Sean Aylmer: That's what bond markets are saying. The Reserve Bank has

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Sean Aylmer: been very wary. I mean, Jim Chalmers yesterday spoke about

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Sean Aylmer: a fifty basis point cut in May. He wasn't saying

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Sean Aylmer: they should do it, just saying that some people think

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Sean Aylmer: that that's what could happen. It's fairly preemptive, and we've

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Sean Aylmer: still got a lot to get to before we get

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Sean Aylmer: to May. So like where we stand today, sure, but

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Sean Aylmer: who knows what Trump's going to do, Who knows what

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Sean Aylmer: inflation reading for March quarter is going to do. Who

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Sean Aylmer: knows what the election's going to do, so all ways

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Sean Aylmer: to go.

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Michael Thompson: Yeah, the only thing we know is that we don't

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Michael Thompson: actually know what's going to come.

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Sean Aylmer: Right, known unknowns and known unknowns.

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Michael Thompson: Oh, yes, well done, great way to finish, Linda. Look,

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Michael Thompson: I hope we've answered your question adequately, and I hope

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Michael Thompson: we've cleared up a little bit of the confusion around

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Michael Thompson: all this. Like the way I say we have cleared

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Michael Thompson: this up. Sh look on your face right now, it's

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Michael Thompson: just perfect all right. Look, but Linda, thank you for

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Michael Thompson: the question. Thank you Sean for answering it so admirably.

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Sean Aylmer: Thanks Michael, Thanks Linda, and remember.

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Michael Thompson: If you've got something that you would like to know,

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Michael Thompson: then please send through your question on LinkedIn, Instagram, Facebook,

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Michael Thompson: or at Fearandgreed dot com dot au, which is also

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Michael Thompson: where you sign up for our free daily newsletter. A'm

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Michael Thompson: Michael Thompson and this is ask Fear and Greed