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President Trump wants lower interest rates: More volatility ahead?

In another surprise that shouldn’t be surprising these days, President Trump told CNBC that he was frustrated that the US Federal Reserve is increasing interest rates.

When Donald Trump was running for President he was very keen to criticise ex Fed Chair Janet Yellen for keeping the interest rate low and argued the rate should be higher. At the time Hilliary Clinton said he shouldn’t be commenting on the impartial decisions of the Fed.

Neither of those two facts seem to have stopped President Trump from changing his mind. Commenting on the rate rises he said to CNBC “I’m not thrilled. Because we go up and every time you go up they want to raise rates again. I don’t really — I am not happy about it. But at the same time I’m letting them do what they feel is best. But I don’t like all of this work that goes into doing what we’re doing.”

None of the last three US Administrations have publicly commented on the US Federal Reserve’s decisions. President Trump has a very different way of doing things.

In reply to being unorthodox about his Fed comments he said “Now I’m just saying the same thing that I would have said as a private citizen. So somebody would say, ‘Oh, maybe you shouldn’t say that as president.’ I couldn’t care less what they say, because my views haven’t changed.”

Does this matter?

Most things that Trump says shouldn’t be taken seriously. He changes his mind so frequently, disagrees with previous his comments and is hypocritical on a lot of topics.

However, it matters a lot because his words can turn into decisions that have major flow-on effects. Just look at what the tit-for-tat tariffs are doing to share markets.

I’m sure most readers have previously heard the theory that a lower interest rate means higher asset prices and higher rates mean lower prices.

If the US Fed were to suddenly stop raising rates then the yield trade could be back on. That would make Transurban Group (ASX: TCL) and Sydney Airport Holdings Ltd (ASX: SYD) seem more attractive. It could reduce the wholesale funding costs for Commonwealth Bank of Australia (ASX: CBA) and others. Perhaps highly indebted businesses can sleep a little easier?

However, I don’t think current Fed Chairman, Jerome Powell, is going to change the planned course of rate rises. Just this week he told Congress “For now – the best way forward is to keep gradually raising the federal funds rate.”

I don’t think the Fed will race to a 3% rate, but 2.5% seems almost certain in the next year or two.

In this uncertain environment, it might be a good idea to go for a growth share with defensive characteristics like this top ASX share.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Sydney Airport Holdings Limited and Transurban Group. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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