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Potato five ifif you five car CD talk station. It being Monday, it's that time of week. Get to hear Where'm from all Worth Financials, Brian James, financial planner. He is talking about money matters. It is money Monday time. Brian James, Welcome back to the Morning show. Great to hear from you, my friend.
Absolutely good to hear your voice too. It's a rainy money Monday. So let's sit and tide and talk about numbers and boring.
Yeah, inflation, let's talk inflation. Let's show whether or not it's gonna impact the Fed's decision to cut interest rates or not, as the case may be. But the background of all this is the uh, the Trump trade wars, the the tariffs he's been levying or then taking off,
as the case may be. It seems to be like a constantly moving target, you know, announces tariffs one day and then he says, well, I'm gonna pause him, give us time to negotiate or talk and you kind of a you never really quite have a grip of which directions going to go. But thus far, I think the general consensus, at least from what I've read no economist am I, is that thus far the tariffs really haven't impacted you and me on a day to day basis.
The way everyone was.
So frightened that it would, oh my god, the prices are going to go through the roof. Well that's not yet necessarily been the case, has it. Yeah, things that make Jerown Powell go hmmm. So we've seen this.
We're now starting to see numbers coming out that were far enough past the tariff announcements and the actual presence of those tariffs. Remember, the announcement of the tariff and the actual tariff are two very different things, right, as we've learned. But June's CPI is forecasted to rise about a third of a percent month over month for both headline and core numbers. Remember those are the there's two different CPI figures that we all like to look at.
This is the first real tangible impact we've seen from this new round of Trump era tariffs in getting core inflation near three percent annually. So it's kind of moving away from the target. The FED wants to be in the two percent range. That's what really makes Jerome Powell happy in the morning. But we're not there. And well, this to your point, this is not terrible. This is not a massive spike as some had prognosticated over the
past few months. But at the same time, up is not down, and we're higher than the Federal Reserve once. So at the moment, Jerome Powell has a bit of a dilemma in terms of which which battle does he fight? Is he gonna fight inflation because this is also coming alongside a slightly weakening labor market, so things do seem to be cooling off.
This is a tough one.
I'm kind of glad that I don't have I don't have his job right now, because he's really got two forces pulling in the opposite direction on him.
Well, I mean, are we entering like a nineteen seventies kind of situation with stagflation?
No, I don't.
I don't think we're there yet. You know, my crystal ball is as foggy as anybody else's. But I don't think this is this yet has all the same impacts that full stagflation did. And the reason that we one of the reasons I believe personally, is because there are so many catalysts Brian of ways that we make money now compared to the seventies, And I'm just thinking of things like, you know, the seventies, we didn't have a whole lot of innovation compared to what we have now.
That's a good think of the last twenty years. We had the Internet come up, and we've had AI, We've had a real estate spike, we had COVID that drove, you know, the work from home technology and all this stuff. Everything is a catalyst that somebody makes money off of. So that stuff, I think currently knocking on wood furiously is offsetting the downsides of what we're going through.
That's interesting. I never really looked at it that way. A lot of job opportunities that just didn't exist, and we've created a whole new economy since the nineteen seventies, which was I guess more rooted in a traditional I guess more manufacturing type economy, and thus the problems we faced in the seventies.
Yeah, that's right, And there was just a different environment in terms of how we recovered from things so we had spikes in oil prices, and of course that was a lot of that too, was driven by the President.
Nixon wanted to drive interest rates down because he had an election coming up and he wanted happy people putting their votes into their ballot boxes, and so he pushed hard for low interest rates, and that spiked a lot of demand, which resulted in Paul Volker coming to the rescue with his Superman cape in the late seventies early eighties, forcing us into a pretty significant recession that then settled back down into this two to three percent range that
we over the past forty years have determined as kind of the right happy place to be, because over the last forty years it hasn't been that crazy economically speaking when you compare it to the nineteen seventies. So we've kind of concluded that, okay, that must be the right place to be balanced, but it takes some sacrifices to get.
There, all right.
So we have this point three percent predicted figure for the consumer price that's supposed to come out today. Core rate that strips out food and energy also predicted to B point three, which makes it higher than the fetid hope because that would push it past the two percent goal and closer to three percent if it remain on this trajectory.
If I got that right, that's correct, if you're on the right path.
All right now, to lower interest rates be to add fuel to the fire of the inflationary numbers leads. That's what they always say.
Correct, that's correct, exactly right, and that's what Trump wants. Trump has been talking about rates aren't low enough. He said that all the way through, and I honestly, I think I'd wear a tinfoil hat sometimes, but especially when it comes to politicians of every flavor, because everybody at the end of the day is just out for votes. That's all because they got to stay in their jobs. Anyway, I think it's a sexy thing to talk about interest rates.
We've all become fixated with interest rates because we've we've fallen in love with the idea of refinancing our mortgages over and over again, and we feel entitled to these two to three percent mortgages. Therefore, if I'm a politician, it makes sense for me to just talk about lower rates. All you need is the SoundBite. I don't need to get into the possible downsides of having rates too low for too long. We saw that in the seventies, and
I'm going to talk about that. I'm just going to trigger people's memories that, hey, I really liked when I could refinance my mortgage over and over again, so that can possibly win me votes. That's going to be the drum that I beat.
Yeah, you know.
And the other the sort of the side cul de sac on that point is if interest rates were back down to three for mortgages, I think it would probably exacerbate the already problem shortage of housing we have. There'd be more people out there wanting to buy, which of course drive the limited inventory prices up.
Yeah.
The people who would be happiest are the ones who bought a house anyway, knowing full well that it's not as good of an environment as it was over the past ten to fifteen years, but they were sort of gambling that rates are going to come down, I can refinance.
Those people would be really, really happy. It's the people who are furiously trying to build up a down payment to buy their first home that are going to take it right in the face because it's just going to get slightly more, you know, more and more expensive as it already is.
Yeah, there's no end insight to that one now. And back to inflation. The idea that Trump just announced over the weekend, he's going to put a thirty percent terarify on goods from the European Union and Mexico and that kicks in August first, obviously giving him a couple of week winded and negotiate, which I presume that's what he wants. That hasn't been factored into the situation, has it yet? No, not really, But at the same time, I think we're used to this, right.
So remember back in April, the market hit an absolute bottom, and it hit it hard in early April, and that was the initial panic over oh my gosh, these tariffs are huge, one hundred and forty percent on stuff coming out of China and we're changing them every other day.
Panic, panic, panic.
Well then we realized, okay, wait a minute, that maybe we're not going to actually tear off band aids like it felt like we were going to. We're gonna kind of, you know, put these thirty day delays and all that kind of stuff on it. So the market is kind of winking at all this, it's just kind of ignoring it. You know whatever, let me know when you're done and you've decided, then the market will tell us what it's
going to do. So, you know, futures as we're sitting here right now, are down a little bit for the morning, but not nearly as much as they would have been when these first tariff announcements came out months ago, when we were first getting used to our new chaotic reality.
Well, and maybe that's because they didn't stick around for a long time. That was like, you know, Trump would announce them and the market will react, and then he would say, now I'm going to put a hold on those and withdraw them and again for the purpose of negotiating. Sitting in the negotiation table, it's all I guess can be made of why they're on in, they're off, and they're on, and they're off again. But you can't factor
that in. If you don't have any idea which direction the tariffs are going to go, how do you forecast the future?
He just can't do it.
You know, I picture, you know, being mugged in an alley. If I jab my knife at you, you're probably going to be more willing to hand me over your wallet without me having to do any damage. That's really all we do, over and over and over again. It's just a negotiation. As ugly as it sounds, it truly is.
Well.
I know that the Wall Street journalist said the economists economists are seeing a lower recession risk with stronger job growth. That's Wall Street journal survey of the economists that they talk to. So I mean it's like a mixed bag of news and all this, Brian, I guess that's why there's so much confusion in terms of which direction we're going to go in terms of rate interest rates.
Yeah, and this is very much a popcorn making time for the rest of us who do not have to make these decisions on that benefit or harm the rest of the world. Again, I go back to Jerome Powell. I don't know how the man sleeps at night. He's he's in a world where you know, again, he's got those two forces pulling an opposite direction, and he's the one who has to side which lever to pull in which button to push.
So I do not envy that man right now.
No, No, he's in quite a conunder. We'll talk more about this with Brian James from all Worth Financial that and I guess we also have some of the big beautiful tax breaks, maybe a little bit smaller than people anticipated. In the BBB Brian James will continue after this word for plumb tight plumbing, plumbing done right. It's always plumbing done right. They live by that model. You get outstanding plumbers,
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Our eight nineteen if you've got pair C detalk station. Very happy Monday to you. Done the money Monday thing with Brian James Smallworth Financial. Going back to the conundrum and the problem that Jerome Powell is in such a position you mentioned it in this article addresses it. The one who provided me The FED is to mandates. It can be at odds, and they're at odds now keep inflation in check and supporting the labor market. So to keep inflation in check. If it's run too hot, they
raise rates to slow demand. Okay, when the labor market starts to drop off, they cut rates to boost barring and spending and thus in turn hiring. But you've got both going on at the same time. You have a cooling labor market as has been reflected, and you have a little bit warmer inflation number as you mentioned, it was point three or is reportedly going to be point three for the month to higher than the two percent
annual trajectory. So it suggests, I mean, the answer seems to me to be just don't touch the rates at all at this point, rather than lower them or increase them, which nobody really is talking much about. Why would you even do anything to them right now if you have no clear vision of the future on this, Brian James, Yeah.
At the moment, we're not at a point. Again, I'm not Jerome Powell. I'm not responsible for this. So this is really you know, me sitting off on the sidelines,
being an armchair fed chair. But so yeah, I don't think we're at a point where we have to go one direction or the other, you know, with the exception of the pressure from the White House is enormous, of course, because this has been, like I said, this has been a campaign plank for President Trump for both of his both of his terms, and when he was not in office, he was still talking about it, right, always being that rates need to go lower, lower, lower, We'll worry about
the rest later. So at the moment, I think it's it's kind of it's relatively easy for fed chair pal to not do anything about it because of those things that could happen, and the benefits would not outweigh the risks. Currently we're kind of at a bit of a balance, and that's what we're seeing in the stock and bond market.
It's fairly knock on wood quiet time right now. But later in the year, later in September, if these if these trends continue, in other words, if the labor market continues to weaken and we continue to have the other things happening on the inflationary side, then he's probably going to have to make a move in one direction or another and lay his cards on the table.
Well, it's right now, we're we're kind of stableish.
But if that happens, in other words, inflation continues on its current upward trajectory and the labor market is on the downward trajectory, the likelihood that the rates are going to get lowered is slim and none, because that'll have a profound impact on inflation. At least that's what they say. Because and this is the other thing I wanted to
test and find out what your perception is. The import taxes haven't yet crept into the consumer prices because apparently companies were front loading inventory because they anticipated these tariffs kicking in, so they've pre ordered a whole bunch of stuff in late two thousand and four, in twenty twenty five.
But it's pointed out eventually they're gonna have to start passing on higher prices to consumers because their inventories are gonna run low and they're gonna have to start buying more stuff in things that they're gonna be subject to the tariff. So, I mean, if anybody, if this is an accurate assessment of the landscape, you know, prices are gonna go up.
They're gonna have to. There's really no other choice.
You're right, because because again we're as I said earlier, we've been calm over this reletive. Once we got over the initial shock that we're gonna start talking about tariffs very loudly. That was back in April, and then we realized it's not gonna it wasn't It's not as scary as it sounds because we really haven't seen the impact yet. Now we're riding the wave of prices that were locked in, as you just pointed out in Q four of last
year and Q one of this year in anticipation. So things are still stable, but we're not truly in a full tariff oriented reality that's coming over the next several months. And if we if we really want to follow what the President says in lower rates, then that is going to provide opportunities for businesses to make more money. And they're going to They're definitely going to push that because it's what they do. It's, you know, what they should do. But on the other hand, they are not the ones
responsible for keeping inflation in check. That falls to That falls to the Fed chair, and he's going to have to make some tough decisions in terms of guiding us through all that.
Well, he's just got to wait and see what the teriffs do it if they even go into effect. Again, thirty percent announce kicked in August first for quite a number of our trading partners, and again the logical conclusion is that we'll raise prices ergo lowering rates when a time of rising prices is a recipe for rapid runaway inflation, which Donald Trump mean Donald Trump campaigned on lowering inflation.
It's going to do the exact opposite of what he promised, and as we run into the you know, the next election cycle, that's not going to be a real good thing happened in Brian James. If you're hopefully hoping for the best for the Republicans anyway.
And I'll hope for the best for all of us, which is, if you find a way to get along, then maybe we'd be we'd be in a better spot. But yeah, and I think the other challenging thing is betcher Pal doesn't get to change interest rates today and then make and then reverse.
The change tomorrow. That's right. Trump apparently does, so that's.
That's he's gonna Pal's gonna have to wait until the dust truly truly settles on this, because his decisions are much more permanent and long lasting than a day and a half.
Worth of tariffs.
Well, and I suppose in the background there's always the notion that just threatening the thirty percent teriffs will at least bring folks to the negotiation table and maybe we'll end up with a better deal. Before anything kicks in and ultimately impacts inflation, one can only pray that we get that kind of resolution. Brian James, let's continue with you and some of the big beautiful tax breaks a little bit smaller than some anticipated. One more with Money
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Take twenty nine if you if I have kseen the talxtation.
Brian Thomas was a or financials Brian James on Monday Monday coming up with the next segment, tax fish or state representative talk about Ohio's marijuana laws and his efforts to protect your ability to get weed under the law as passed and in the meantime, Brian James, I hate the name of it, the great, big, beautiful bill blah blah blah, little alliteration there anyway, promised a lot and delivered on a whole lot, of course, making the twenty
seventeen taxes permanent, which is a tax break for all of us. Had they increased everyone would have felt the pain of that, but not as big a change to you know, things like the deduction for taxpayers sixty five and older. And I was a little distressed about the salt deduction, that standard state local tax deduction that they raised from ten thousand to forty thousand, although it comes with some significant limitations as well. Let's talk about that to start with Ryan.
Yeah, so when we hear these salt, these are the terms and things that kind of glaze people's eyes over because it just starts to sound boring when we throw all these acronyms out there. But salt stands for assault, stands for state and local taxes. So state and local tax caps are jumping from ten thousand dollars.
To forty thousand dollars.
This is the deduction you can get because you have to, because you have to pay state and local taxes.
It's not a major issue.
I don't hear many of my clients here in the Tri state area complaining about, you know, other than you know, people.
Who just don't want to pay taxes in general.
But it's not near the burden here that it is elsewhere in your higher tax date.
But the deduction is a benefit to those high, high tax blue states.
Oh absolutely, and that's where this is coming from.
And you remember in twenty seventeen when this first went into effect, it was a poke in the eye. It was an attack, you know, from the red side to the blue side because of that very reason, because basically making the case that well, you you've chosen to make your state a high tax state, so you've got to live with the consequence. Well, now the going the other way, because there's an awful lot of moneyed interests out there who say, look, we're rich too, and we want to
save on taxes, so fix this. So part of this act is increasing the deduction you get from a cap of ten thousand dollars up to forty thousand dollars, but it phases out for taxpayers with modified adjustic gross income above five hundred thousand and goes away completely by six hundred thousand dollars.
Well, and anybody who's paying forty thousand dollars in state and local taxes is probably a higher income earner anyway, exactly.
Yeah.
But the point is though that it's not this it's interesting to me because it's a tax cut for people who are probably on the wealthier side, but it does have a cap at incomes between five hundred thousand and six hundred. Anybody who makes over six hundred is not going to benefit from this at all. And if you're married, you're at a slight disadvantage compared to to a single person in this situation.
All right, I know the megabill contains a new deduction senior's car loan interest and tips and overtime that those are limited as well. I mean it's not you get to deduct one hundred percent of your tips or you don't have to pay taxes and one percent of your tips or overtime. There's some caps on that one too.
Yeah, it's getting and I think I've mentioned this before, but yeah, so the Trump administration is just trying to benefit people who who most need it. If you're somebody who accepts tips, you're probably making a good amount of money, but you're you know, people who making five, seven hundred and fifty, you know, one hundred million dollars a year aren't taking tips. So this is on the lower end of income with the income side, and it is a benefit.
Clearly for that.
I think what's going to be really interesting is again to see exactly what creative ways people find out find to come up with labeling certain chunks of their income tips. Somehow I feel like hedge fund managers are going to start taking tips. It will be sort of that similar to that carried interest phenomenon where they've made something up out of the seventeen hundreds so not have to pay taxes on things.
Now?
Is this a consult with your financial planner moment for people in these various categories about how you get ahead of it and are there ways that you can arrange your portfolio or your payouts or however wherever you are and your retirement stage of your life, you need to anticipate how to deal with this and be forward thinking about some of these deductions and changes in the law.
I think you know what my answer is going to be because I'm a little Buddist, having been one for thirty years, but absolutely because these are all puzzle pieces. Everybody has to deal with two sets of puzzle pieces. You've got your own situation and all the facts and figures and resources and responsibilities that you have in your own little world. But then the other set of puzzle pieces is whatever the outside world is going to do
to you. That's your employer, that's your government, your tax authorities, and all that kind of stuff, and you have to pay attention to really what the benefits are. Why are these changes being made. The drum beat right now is that, yes, we may tax cuts permanent from twenty seventeen, and that's a wonderful benefit for people. But you have to look under the hood and remember where these tax benefits are landing for the vast majority. So, for example, tax cuts
and Job Act from twenty seventeen dropped. For people making between fifty and seventy five thousand dollars, your taxes dropped. Your effective rate dropped by about twenty two percent, right, from nine percent to seven percent, down twenty two percent.
That sounds like a big number, right.
If you make two hundred to four hundred, then you had your effective rate drop by about ten percent, not bad, that's still double digits. Corporations, however, Brian Thomas at the same time saw a forty three percent reduction and actual taxes paid. This tax cut that we just made permanent with the obbbbbbbbb is not for individuals, it's for corporations.
We gave individuals and families a reason to go vote for it, because we got to say, hey, you're looking at a ten percent decrease, but corporation's got about four times that. So you have to pay attention to where the benefits are well.
And then there's always the argument that corporations don't really pay taxes. Their taxes are reflected in the price of the goods and services that they offer, So a reduction in corporate taxes may mean well, lower prices for us exactly.
And so the argument against this, and I've had this discussion here in the all Worth offices with some other folks about where the benefits came from this, and the argument is often that, well, it's offset by economic growth because we're saving money for companies. Therefore they're going to reinvest in new things and all that kind of suff we're going to make more money. That just doesn't pan out though. In twenty eighteen twenty, shortly after twenty seventeen, of course, GDP rose to two.
Point nine percent.
That's up two point four from twenty seventeen, so we saw a little bit of bounce there, but it got back to trend by twenty nineteen, abound two to two point three percent. Even if you include the round trip of COVID, the recession, and then the recovery, it stayed in the range of the load to mid twos. Meanwhile, corporate share buybacks, in other words, companies saying, hey, we got extra money, let's buy back some of our shares. If we own our shares, we don't have to pay
dividends on them. Those increased by about fifty five percent between seventeen and eighteen. So firms use those tax wind falls for buybacks and dividends to shareholders, not new investments. So we did not see the capital growth that was touted to offset the tax cuts.
Got to look at it to multiple sides. We have Brian James every Monday to talk money matters and make sure you get yourself a certified financial planner person who owes you a fiduciary obligation so you can prepare adequately for your future. Got to take the reins yourself on that one. Nobody's gonna do it for you. Brian James, appreciate you opportunity to talk with you every Monday. I'll look forward to next Monday, and I hope between now
and then you have a great week. YouTube talking a week a thirty seven five K sit the talk station Text Fish or state Representative Fisher is going to join us in the next segment talk about marijuana laws and some Republicans' effort to change them and tighten down on them.
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