EJ Antoni - Economist, Heritage Foundation Joins Houston's Morning News

Episode Transcript

Speaker 1 (00:00):
Economists EJ and Tony joins us to talk about the
FED decision before we get to the politics of all this.

Speaker 2 (00:07):
EJ.

Speaker 1 (00:09):
For all practical purposes, what do you think this means
to the markets? What happens as the result of reducing
the FED rate by fifty basis points?

Speaker 2 (00:19):
Well, Jimmy, you'll see an increase in certain equities for sure,
Probably an increase in the equity market broadly, so you'll
see stocks go up. You'll see gold, for instance, go
up as well. But it's not really going to have
much of an effect at the consumer level. In other words,
you're not going to see any kind of appreciable difference
in the interest rate on your credit cards. Those are
going to stay near thirty percent at least for the

(00:41):
time being.

Speaker 1 (00:42):
Okay, And there's a lot of people who seem to
think that it's going to impact mortgages. There's no direct
connection between the FED rate and mortgages.

Speaker 2 (00:48):
Is there? No, there's really not. In fact, there's much
more of a connection between what the FED does with
mortgage backed securities and mortgage rates. And the FED continues
to sell off it's portfolio of mortgage backed securities. In
other words, that's making it harder for banks to actually
get the or to give you the loans rather for

(01:09):
a mortgage. So there's no reason to believe that mortgage
rates are going to come down appreciably anytime soon either.

Speaker 3 (01:15):
So the uninformed go rah rah rah. Interest rates are
coming down, except if they try to borrow, they can't
get the money. And Wall Street is happy because why
why is Wall Street reacting the way they do.

Speaker 2 (01:28):
Well. Essentially, it's making it easier not only for businesses
to borrow, but it's also making it easier for investors
to borrow and to invest on margin. And that's really
not a good sign because it introduces a lot of
additional leverage into the market, and leverage is risk, and
leverage is where you can seriously get yourself into trouble.

(01:49):
That's one of the big problems we're seeing in the
banking system more broadly right now.

Speaker 3 (01:54):
In other words, you're not really investing in business growth,
corporate growth. You're betting on how the markets will reac
It's a gambling it's a gambling scam.

Speaker 2 (02:04):
It very much is like gambling absolutely share and again,
if if if you bet on black and the wheel
comes up black, then you're fine, but if it comes
up red, you're in a lot of pain. You can
actually lose much more than you initially invested quote unquote.

Speaker 1 (02:20):
Okay, So from the politics of this, this is the
first time they've done anything like this, This is close
to an election in forty years. Does this really give
the Democrats an advantage by doing it right now or not?

Speaker 2 (02:33):
Well, I'm not sure it so much gives them an
advantage in terms of the economic numbers. In other words,
what kind of impact this will have. I don't think
it's going to make much of a change that census again,
especially at the consumer level. But what it does give
them is a talking point. They can now run around
and say, oh, look, the war on inflation is over
and we won. Things are fine. We know we won

(02:56):
because the Fed is already cutting interest rates. But you
can't have it both ways. The only reason they're cutting
interest rates is because there's so much weakness in parts
of the economy like the labor market. So if things
are so great, then they wouldn't need to be cutting
rates in the first place.

Speaker 1 (03:12):
Well, there you go, Thank you, sir as always appreciated
economists with the Heritage Foundation, EJ. And TONI