Welcome to Ask Fear and Greed, where we answer questions about business, investing, economics, politics, and more. I'm Michael Thompson and hello Sean Ayleman.

Welcome to Ask Fear and Greed, where we answer questions about business, investing, economics, politics, and more. I'm Michael Thompson and hello Sean Ayleman.

Hello Michael, Sean.

Hello Michael, Sean.

Great question today. It has come from Linda, who sent us this message via LinkedIn. She says, Hi, Fear and Greed, I absolutely love the show. I'm going to start with the praise first, if that's all right.

Great question today. It has come from Linda, who sent us this message via LinkedIn. She says, Hi, Fear and Greed, I absolutely love the show. I'm going to start with the praise first, if that's all right.

I love Linda.

I love Linda.

Yeah, she says, I absolutely love the show. I'm an avid listener. Often my husband will catch me laughing out loud as I do the housework listen listening to the show.

Yeah, she says, I absolutely love the show. I'm an avid listener. Often my husband will catch me laughing out loud as I do the housework listen listening to the show.

I hope that's the weekend edition and not the Mota to Friday edition. Linda.

I hope that's the weekend edition and not the Mota to Friday edition. Linda.

I suspect it would be the weekend edition because otherwise we're supposed to be otherwise. But Linda goes on to say, I have a question about Trump's tariffs and interest rates. I would have thought that tariffs would drive up prices, which would drive up inflation. Then interest rates would need to rise, But it looks like everyone is saying the RBA will need to reduce rates because of slowing economic growth. I'm confused. That was Linda's commentary, but you know what, just I'll see put myself into that.

I suspect it would be the weekend edition because otherwise we're supposed to be otherwise. But Linda goes on to say, I have a question about Trump's tariffs and interest rates. I would have thought that tariffs would drive up prices, which would drive up inflation. Then interest rates would need to rise, But it looks like everyone is saying the RBA will need to reduce rates because of slowing economic growth. I'm confused. That was Linda's commentary, but you know what, just I'll see put myself into that.

Lind is applying a bit of logic to economics.

Lind is applying a bit of logic to economics.

Yeah, this is the challenge is very very.

Yeah, this is the challenge is very very.

Silly, Linda, We don't apply it's a great question, like it's a really fair question, because we keep talking about tariff's pushing up prices, and of course when prices go up, we know that central banks lift interest rates to try and take the heat out of the market. What's happening in this case is that the tariffs were much bigger than everyone expected, and so all the commentary about broad based and the minimum tariff, a country like Australia, which actually has a trade surplace with the US, still being hit with a ten percent tariff taily unfair, China fifty four percent tariff really unfair. What that does is take all the heat out of economic growth, so people have to pay more. People can't mean Chinese or Vietnamese or Cambonian don't sell as much stuff. So economic growth suddenly slumps and potentially you get a recession that overrides the impact of higher tariffs on inflation, because when you have an economic slat awnd, people stop buying stuff and it's not like they're not pushing prices up. It's kind of which comes first, chicken over the egg. In this case, it's the chicken, because economic growth takes the heat out of the market, so people won't pay higher prices because they can't afford it. And so all of a sudden, what the Reserve Bank or the US Federal Reserve or whatever central bank you want to talk about, they start cutting rates because they realize they've got to get economic growth going to put some more oomph into the market. The secondary consideration then becomes in inflation. So in COVID, after COVID, remember we know everything crashed, governments put huge amounts of money in Inflation spiked, it took off to seven percent or so. But actually just getting the economy going again was more important, and we worry about inflation down the track. It's like a mini version of that. At the moment we worried about inflation. Worried about inflation. Oh my god, these tariffs are huge. This is going to stuff up the global economy. Let's not worry about inflation now, let's get things moving and then we'll worry about inflation.

Silly, Linda, We don't apply it's a great question, like it's a really fair question, because we keep talking about tariff's pushing up prices, and of course when prices go up, we know that central banks lift interest rates to try and take the heat out of the market. What's happening in this case is that the tariffs were much bigger than everyone expected, and so all the commentary about broad based and the minimum tariff, a country like Australia, which actually has a trade surplace with the US, still being hit with a ten percent tariff taily unfair, China fifty four percent tariff really unfair. What that does is take all the heat out of economic growth, so people have to pay more. People can't mean Chinese or Vietnamese or Cambonian don't sell as much stuff. So economic growth suddenly slumps and potentially you get a recession that overrides the impact of higher tariffs on inflation, because when you have an economic slat awnd, people stop buying stuff and it's not like they're not pushing prices up. It's kind of which comes first, chicken over the egg. In this case, it's the chicken, because economic growth takes the heat out of the market, so people won't pay higher prices because they can't afford it. And so all of a sudden, what the Reserve Bank or the US Federal Reserve or whatever central bank you want to talk about, they start cutting rates because they realize they've got to get economic growth going to put some more oomph into the market. The secondary consideration then becomes in inflation. So in COVID, after COVID, remember we know everything crashed, governments put huge amounts of money in Inflation spiked, it took off to seven percent or so. But actually just getting the economy going again was more important, and we worry about inflation down the track. It's like a mini version of that. At the moment we worried about inflation. Worried about inflation. Oh my god, these tariffs are huge. This is going to stuff up the global economy. Let's not worry about inflation now, let's get things moving and then we'll worry about inflation.

It's essentially a stimulus action to try to just get things moving. Do you remember it was a POSTGFC where the government at the time, and this would have been the labor government in Australia made and they even referred to them as stimulus payments just in order to get people. Yeah, get people spending. It was eight hundred dollars I think, or thereabout kind of per adult, just to get people spending, to get some movement, some life into the economy.

It's essentially a stimulus action to try to just get things moving. Do you remember it was a POSTGFC where the government at the time, and this would have been the labor government in Australia made and they even referred to them as stimulus payments just in order to get people. Yeah, get people spending. It was eight hundred dollars I think, or thereabout kind of per adult, just to get people spending, to get some movement, some life into the economy.

Eight hundred bucks doesn't sound like much, right, But if I get eight hundred dollars and I go to a restaurant, and I go to a clothing and I go to the mall and buy some clothes and food and go to the movies and spend my eight hundred bucks, then the people at the movie cinema or the people at the restaurant and the people they're getting more money, they oh, well, I might spend that too, So there's this multiplier effect. Yeah, so eight hundred bucks doesn't sound like much, but by the time the shopkeepers spends it, and then whoever he or she spend it on, they spend it and goes on and on and on, and it is a great way. So that they were the Trump numbers, sorry Trump apologized to Kevin Rudd a long way from Donald Trump.

Eight hundred bucks doesn't sound like much, right, But if I get eight hundred dollars and I go to a restaurant, and I go to a clothing and I go to the mall and buy some clothes and food and go to the movies and spend my eight hundred bucks, then the people at the movie cinema or the people at the restaurant and the people they're getting more money, they oh, well, I might spend that too, So there's this multiplier effect. Yeah, so eight hundred bucks doesn't sound like much, but by the time the shopkeepers spends it, and then whoever he or she spend it on, they spend it and goes on and on and on, and it is a great way. So that they were the Trump numbers, sorry Trump apologized to Kevin Rudd a long way from Donald Trump.

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

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

He would not, but that that spending by Rudd really really supercharged the economy. Yeah, okay, it's a great question from Ninda, because we keep talking about tarist being inflationary, and suddenly, just like that, we start saying, oh, rates are going to get cut, and it's basically because of the size of the tariffs.

He would not, but that that spending by Rudd really really supercharged the economy. Yeah, okay, it's a great question from Ninda, because we keep talking about tarist being inflationary, and suddenly, just like that, we start saying, oh, rates are going to get cut, and it's basically because of the size of the tariffs.

Okay, And the expectation is what for at least one rate cut in May most likely, and then potentially two more this year, or that's generally what economists are saying.

Okay, And the expectation is what for at least one rate cut in May most likely, and then potentially two more this year, or that's generally what economists are saying.

That's what bond markets are saying. The Reserve Bank has been very wary. I mean, Jim Chalmers yesterday spoke about a fifty basis point cut in May. He wasn't saying they should do it, just saying that some people think that that's what could happen. It's fairly preemptive, and we've still got a lot to get to before we get to May. So like where we stand today, sure, but who knows what Trump's going to do, Who knows what inflation reading for March quarter is going to do. Who knows what the election's going to do, so all ways to go.

That's what bond markets are saying. The Reserve Bank has been very wary. I mean, Jim Chalmers yesterday spoke about a fifty basis point cut in May. He wasn't saying they should do it, just saying that some people think that that's what could happen. It's fairly preemptive, and we've still got a lot to get to before we get to May. So like where we stand today, sure, but who knows what Trump's going to do, Who knows what inflation reading for March quarter is going to do. Who knows what the election's going to do, so all ways to go.

Yeah, the only thing we know is that we don't actually know what's going to come.

Yeah, the only thing we know is that we don't actually know what's going to come.

Right, known unknowns and known unknowns.

Right, known unknowns and known unknowns.

Oh, yes, well done, great way to finish, Linda. Look, I hope we've answered your question adequately, and I hope we've cleared up a little bit of the confusion around all this. Like the way I say we have cleared this up. Sh look on your face right now, it's just perfect all right. Look, but Linda, thank you for the question. Thank you Sean for answering it so admirably.

Oh, yes, well done, great way to finish, Linda. Look, I hope we've answered your question adequately, and I hope we've cleared up a little bit of the confusion around all this. Like the way I say we have cleared this up. Sh look on your face right now, it's just perfect all right. Look, but Linda, thank you for the question. Thank you Sean for answering it so admirably.

Thanks Michael, Thanks Linda, and remember.

Thanks Michael, Thanks Linda, and remember.

If you've got something that you would like to know, then please send through your question on LinkedIn, Instagram, Facebook, or at Fearandgreed dot com dot au, which is also where you sign up for our free daily newsletter. A'm Michael Thompson and this is ask Fear and Greed

If you've got something that you would like to know, then please send through your question on LinkedIn, Instagram, Facebook, or at Fearandgreed dot com dot au, which is also where you sign up for our free daily newsletter. A'm Michael Thompson and this is ask Fear and Greed