CGTN Europe spoke to Joshua Mahony, Chief Market Analyst at Scope Markets.
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00:00President Trump commenting and saying that interest rates should be lowered, does he have a point?
00:08Well it's not up to him quite frankly, and it really comes down to what the central bank's mandate is
00:14and primarily that is to keep a lid on inflation and look after growth and unemployment.
00:20Inflation clearly remains a problem, we've seen it once again here and the US economy is in a relatively strong position
00:27so certainly if one side of the coin is already taken care of, they're going to have to focus on the other side of it
00:33and that is inflation, and until we see signs that it is likely going to go back down towards that 2% target
00:39I think the Federal Reserve are going to have to remain patient, which unfortunately means higher interest rates
00:45and higher borrowing costs look to be here for the time being.
00:48Well you say what happens at the Fed is not up to President Trump, but given these comments
00:53how much interference can we expect do you think and what goes on there and what does that mean for the way it does things?
01:01Well look we've already seen questions just today on whether Jerome Powell will step down if Donald Trump asks him to
01:09and he said that he wouldn't resign, so certainly there's previous when it comes to trying to influence the decision making of the FOMC
01:17and they will be aware of it, but that being said it's quite obvious what the lay of the land is right now
01:23inflation is a problem, the last half a year has seen month for month inflation rise and rise and rise
01:29now we're at 0.5, we thought last month's reading of 0.4 for the month was going to be the peak
01:35and today was going to see it come back heavily, instead we've just seen it continue to climb
01:39so there just isn't a basis here for the Federal Reserve to cut rates in the coming months
01:43and instead markets are now continuing to push back those expectations on when we're going to see the first rate cut
01:49Well let's talk about those inflation figures there and as you say rising and rising, what's behind that, what's going on?
01:57Yeah I mean it's pretty concerning, I mean first and foremost we're seeing a resurgence in terms of services inflation
02:04which is a problem because we had been seeing that come down and that was pretty encouraging
02:08we also saw a move higher in terms of monthly shelter costs, shelter costs have been a massive problem
02:13and it looked like we'd finally been sort of keeping a lid on that and driving it down
02:18so around about a third of the inflation metric comes down to shelter
02:22well that moved upwards for the month for month metric
02:26we also saw fuel costs despite the downside we saw in terms of crude oil over the course of January
02:31we saw fuel costs moving towards the upside and used cars once again a problematic issue
02:36another strong reading from that area of the US economy when it comes to the inflation front
02:42so problematic across a number of different points here
02:45You mentioned Jerome Powell, the head of the US Fed, he's speaking again in front of Congress for a second day
02:51and there's already been quite a lot to talk about in this first session since Trump became President again
02:59Yeah of course and I mean ultimately the theme is quite predictable
03:02because the Federal Reserve has a lot of uncertainty ahead of it
03:06and you know we're used to talking about this data dependent approach from central banks
03:10well that is particularly important at a time where they don't necessarily have complete clarity
03:15over what the trade relationships will be between the US and other nations when it comes to tariffs
03:19what the fiscal policy is going to look like, the borrowing outlook is going to look like
03:23what growth is going to look like, how inflation will be
03:26so why would they start to make major decisions now on just guesses of what things will turn out to be
03:32so they're going to be patient especially with the fact that inflation is on the rise
03:36and they're essentially just going to put the ball into Trump's court and say
03:39you can do what you're going to do and we're just going to have to react when we see the data
03:44Let's talk about tariffs, we've talked about them a lot already in the programme
03:47but what do they mean for investors do you think, how concerned should they be?
03:53Yeah I mean anyone that was trading and following financial markets
03:56during the previous presidency of Donald Trump will know that it just feels like a merry-go-round
04:01where one day you check the markets and they're down because Trump's warned of a massive tariff on a country
04:08like the likes of China, the next day you might see him saying well actually I don't want to impose those
04:14and we're going to speak to Xi Jinping and try and work through it
04:17so it's like up and down and up and down
04:19and the fact of the matter is that there are major consequences when it comes to the growth outlook
04:23there's major consequences when it comes to inflation
04:26so people are trying to gauge what the outlook is going forward
04:29and it's very difficult to judge what that will be
04:32when you don't know what all of these trade relationships will be like
04:35and you don't know what the reaction will be from the other countries
04:38because they might then impose similar measures in return on the US
04:42and it might just continue to heighten rather than finding an agreement
04:45Well all of that being factored in no doubt by the head of the US Fed Jerome Powell
04:50if he does end up stepping down from his position
04:53who or what kind of person might we see taking his place?
04:59Well it's a difficult one but ultimately you're going to look at more of the same from Donald Trump
05:05and that is that he has in his second time in office always tried to appoint people
05:10that are receptive to his view and essentially take the exact line that he would take
05:15so we saw it previously when he's bringing people into his cabinet
05:20that perhaps in the first stint were pushing back against him
05:24that's why a number of people resigned
05:26but this time around it feels like they're all pushing in the same direction
05:30he would most likely try and bring someone in that would look to bring down interest rates
05:34but it might be quite hard finding someone right now that is an ardent central banker
05:40or someone in that kind of strength of position as an economist
05:43that thinks that right now they need to cut interest rates because the economy is doing well
05:48but inflation certainly is proving to be sticky and problematic
05:51Joshua great to talk to you, thank you so much for being on the programme
05:54that's Joshua Mahoney from Scope Markets