In Part 2, of What To Expect From Trump’s Second Term, we take an in-depth look at the potential economic consequences of a Trump administration, honing in on key areas such as interest rates, tax policy, government efficiency, and immigration.
Our discussion, led by Alex, Jason, and me, delves into the Federal Reserve’s interest rate strategy, shaped by robust consumer spending and a labor market that is nearly at full capacity. With economic indicators suggesting a possible interest rate cut in December 2024, we speculate about the implications of rising rates in early 2025. Such fluctuations could significantly influence the housing market, where persistently low mortgage rates deter homeowners from selling. This reluctance to list homes for sale inevitably restricts housing supply, exacerbating price increases and making home ownership less attainable for many.
On the front of tax policy, the potential extension of the Tax Cuts and Jobs Act could maintain the current tax rates until 2028. This extension offers various strategies for tax efficiency, especially advantageous for retirees seeking to maximize their income. However, the shadow of the national debt looms large over the economy, with annual interest payments surpassing a staggering $1 trillion. To tackle this pressing issue, the proposal to create a Department of Government Efficiency—possibly overseen by the innovative entrepreneur Elon Musk—could forge new pathways for addressing budget deficits and minimizing wasteful spending. Yet, the efficacy of such an initiative remains to be seen.
We also explore the anticipated impacts of Trump’s tariff policies, which aim to bolster domestic production while potentially causing short-term disruptions to supply chains and driving up consumer prices. Strategically combining tariffs with initiatives designed to enhance American self-sufficiency could yield substantial long-term benefits for the nation’s economy. Additionally, the tightening of immigration policies could have ripple effects on industries that heavily depend on immigrant labor, leading to increased costs for consumers and potentially prompting some undocumented immigrants to self-deport. In summary, while the prospect of Trump’s second term brings with it opportunities for economic expansion and innovation, significant uncertainties linger on the horizon.
This landscape highlights an essential need for proactive financial planning to successfully navigate possible shifts in tax codes, fluctuations in interest rates, and broader economic trends that may emerge.
For more information about anything related to your finances, contact Bruce Hosler and the team at Hosler Wealth Management: Visit them online at https://www.hoslerwm.com/
Call the Prescott office at (928) 778-7666 or our Scottsdale office at (480) 994-7342.
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Guest Profile
Alex Koury CFP®, CERTIFIED FINANCIAL PLANNER® professional and Wealth Manager in Scottsdale, has worked in the financial services industry for fifteen years as a financial advisor and Financial Planner. He holds Series 7, 9, 10 & 66 securities registrations– and is a Registered Representative with Commonwealth Financial Network®.
Jason Hosler holds Series 7 and 66 FINRA securities registrations. He brings a technological edge to our firm and helps many of our clients stay current in the fast-moving age of the internet.
Podcast Host
Bruce Hosler is the founder and principal of Hosler Wealth Management, LLC., which has offices in Prescott and Scottsdale, Arizona. As an Enrolled Agent, CERTIFIED FINANCIAL PLANNER® professional, and Certified Private Wealth Advisor (CPWA®), Bruce brings a multifaceted approach to advanced financial and tax planning. He is recognized as a prominent financial professional with over 27 years of experience and a seven-time consecutive *Forbes Best-In-State Wealth Advisor in Arizona. Bruce recently authored the book MOVING TO TAX-FREE™ Strategies For Creating Tax-Free Retirement Income And Tax-Free Lifetime Legacy Income For Your Children. www.movingtotaxfree.com.
In the Protecting & Preserving Wealth podcast, Bruce and his guests discuss current financial topics and provide timely answers for our listeners.
If you have a topic of interest, please let us know by emailing info@hoslerwm.com. We welcome your suggestions.
*2018-2024 Forbes Best In State Wealth Advisors, created by SHOOK Research. Presented in April 2024 based on data gathered from June 2022 to June 2023. 23,876 were considered, 8,507 advisors were recognized. Not indicative of advisor’s future performance. Your experience may vary. For more information, please visit.
Transcript
Speakers: Jon Gay, Bruce Hosler, Jason Hosler, & Alex Koury
Jon Gay (00:04):
Welcome back to Protecting and Preserving Wealth, and our second part in our two-part series on looking forward to the second Trump administration and what that might mean for the economy. I’m joined again by Bruce Hosler, Alex Koury, and Jason Hosler. Good to be back with all three of you.
Bruce Hosler (00:17):
Jon, it’s great to be with you this morning.
Jason Hosler (00:17):
Same, Jon.
Alex Koury (00:18):
Glad to be here.
Jon Gay (00:21):
Okay, so we’re going to pick up with the economy overall here. We have near full employment; recording this on December 4th of 2024. Talk about interest rates and what that might look like going forward.
Bruce Hosler (00:34):
Well, according to the news this morning, there’s about a 78% chance that the Fed will lower interest rates by a quarter basis points on the Fed funds rate in December here. After that, it becomes a little bit more questionable if the Fed’s going to be able to do that with almost full employment, with the economy being strong, the consumer has been strong. The reports of the Black Friday and the retail consumers this last couple of days have been strong.
I think it’s going to be questionable this first half of 2025 if the Fed’s really going to be able to lower interest rates very much. There’s going to be a lot of upward pressure, in our opinion, on interest rates.
Jason Hosler (01:20):
We talk about interest rates a lot on this podcast, but it’s because it drives so much in the economy. Everything from home lending to commercial lending companies financing their business, so much is based off of those interest rates.
And if we do see interest rates staying higher for longer, that’s both good and bad. It’s good because that means the economy’s doing well, but it could affect other sectors of the economy where people would like to see lower interest rates.
Alex Koury (01:52):
I’d say as well, one thing we’ve also noticed is that as of recently, now that rates are going to probably come down again, mortgage demand is going to jump. So, if you’re starting to give more of a reason for buyers and sellers to start thinking more about either a home purchase or a home sale, whether it’s to downsize or upgrade their homes, that could be very stimulative to the economy as well.
So, ratios come down, they’re going to settle down. Don’t expect zero rates anymore, don’t wish for a 2% mortgage. That’s not going to happen probably in our lifetimes again, but this is a normal environment that I think is very stable and we would need stability. We don’t need rates at zero, we don’t need rates at 6 or 7 or 8%, we need them almost where they are right now.
Jon Gay (02:34):
My wife and I currently have a 2% interest rate on our house and we’re looking to get into a new house, so I appreciate that reminder to ruin my day. Thank you, Alex.
Alex Koury (02:41):
You’re welcome.
Bruce Hosler (02:43):
And that’s the point. The velocity of sales of real estate in the United States is almost as low as it’s ever been since the 1980s because everybody’s sitting on these 2 and 3% mortgages, and they’re looking if they wanted a 30-year right now, 6.3%, 6.7%, and they’re going, “Do I really want to increase 3%?”
Now, in my lifetime, a 6% mortgage has been a good mortgage rate. But for younger people, they’re like, “Well, they used to be 2 and 3%,” and so this is slowing down the home mortgage business. If the interest rates come down, but we don’t know that they’re necessarily coming down in 2025.
We’re hopeful that could be the case, and if Trump is successful in some of his efforts perhaps, but if not, it could be a while before these interest rates on home mortgage rates come down, and that could slow down the number of people willing to trade out of their 2% and 3% mortgages for a 5, 6 or 7% mortgage.
Jason Hosler (03:46):
And we mentioned in the last episode about the shortage of housing in the country, that also affects the supply side too. So, because there’s a shortage, I think home prices continue to remain elevated in the next year.
Bruce Hosler (03:58):
Absolutely.
Jon Gay (04:00):
There is a likelihood that the Tax Cuts and Jobs Act that Trump put into place in his first administration could be extended for another eight or nine years; they might need the reconciliation process in Congress to do that. What does that look like for our listeners going forward?
Alex Koury (04:13):
Right now, what it looks like is you most likely can count on keeping your tax rates where they are, at least through let’s say 2028. If he can get the reconciliation process, go through that process, get it approved, you may be able to get to 2028, and not have to face higher tax rates.
That’s really what we’re telling our clients at this point, and that’s really good though for those that are nearing retirement that have big IRA balances that are in tax-deferred types of accounts. So, one of the focuses of our practice, of course, is that we do a lot of tax planning, that’s a primary cornerstone of our practice, and we’ve been working with our clients on Roth conversions.
Now, seeing that today, Roth conversions are the talk of everyone, that everyone’s trying to convert now, so you want to think about it as your opportunity to get started if you haven’t with those conversion processes, because again, a goal for the future is that you don’t want to be potentially facing higher taxes in the future.
Bruce Hosler (05:10):
And using up your tax bracket, that’s the key opportunity or to max out for a married couple filing jointly- max out that 24% tax bracket to assure that your IRA, your 401(k), your defined benefit plan, any of your deferred money is never taxed more than about that 24%.
That’s the sweet spot in the tax brackets right now, and going into ‘25, we still know that we have the Tax Cuts and Jobs Act in place. If that gets extended, you might have two or three more years under the Trump presidency for that, and then after that, it’s murky.
We don’t know what the tax rates are going to be because depending on how much they can cut the national debt, that interest is growing up. It’s over a trillion dollars a year right now that we have to pay on interest on the national debt.
Jason Hosler (05:58):
And that’s why we still think it’s important for people to focus on Roth conversions, to focus on moving to tax-free. This election doesn’t change our message in any way. Maybe it buys us more time to get conversions done, but the same trends, the national debt, the unfunded liabilities, the out-of-control spending that is leading to higher taxes in the future, it could get slowed, it could get changed, but we still need to focus on moving to tax-free while we have time.
Alex Koury (06:30):
That’s right, because even though Trump is promising lower tax rates for everyone, that’s still potentially creating big deficits in our national spending. So, they may not be as high as what it would’ve been if say the Democrats were reelected into office, but we’re still talking over a trillion dollars a year or more of a deficit spend.
We have record national debt. Our national interest on our debt now is more than the national defense budget, so let that sink in. We have a lot of obligations that are mandatory obligations that are due. We cannot default on our debt. That would create a lot of concern, potentially chaos in the global markets when it comes to servicing our debt and having confidence in our dollar.
Bruce Hosler (07:13):
It’s incentivizing workers. He’s giving no tax on tips, no tax on overtime, and no tax on social security. The flip side of that is though, if there’s no tax on social security, that’s less money to support social security later on, and so they’re great incentives to keep people working.
I mean, think about that; f you’re working on tips, you want to work more because your tips are free. If you’re working overtime, you’re incentivized to work more. So, this is great for the American worker – the no tax on social security, he’s got to come up with the money to make up for that though, and that just adds to that unfunded liability for social security that we have to worry about.
Jon Gay (07:54):
That’s fair. I want to switch gears over to this new Department of Government Efficiency that’s being run by Elon Musk. Talk to me about this and what it might look like as they try to pare down government and government spending.
Jason Hosler (08:06):
Well, Jon, we just talked about how all of these problems that we’ve discussed on this podcast still remain even in light of the election results, but this is a wild card.
I am very interested to see how this will play out over the next four years because if there’s anything that could potentially solve these problems that we’ve talked about, it’s being able to cut the waste in the government, to get on a responsible spending path, to be able to actually not have to have a budget deficit every year.
We’ll see if they can make a difference. It’s going to be a very interesting process as these outsiders are coming into the government bureaucracies looking for wasteful spending. I read an example years and years ago that always stuck with me, of the military contracting process and how they were buying hammers for $500 apiece, Jon.
Jon Gay (09:06):
No joke- hammers and toilets, right?
Jason Hosler (09:08):
Oh, my goodness. And you think, “What if we actually had competitive bidding processes? What if we actually have someone like Elon Musk who has experience in the private sector of bringing costs down?” That’s the entire basis of SpaceX, is to bring launch costs down to enable a space economy.
If we bring that kind of focus to the government – I’m taking a wait and see approach, but it’s going to be very interesting to watch.
Alex Koury (09:34):
We are the technology leaders of the world, undisputed. There’s a lot of potential behind artificial intelligence as we know and what we believe. That can accelerate growth and GDP growth in our country. So, we have accelerating growth of our economy, we can bring down the costs.
There is the potential longer term to, like Jason mentioned, overturn these deficits that we’re running into surpluses.
Bruce Hosler (09:58):
Yes, absolutely.
Alex Koury (09:59):
That’s a big deal to think about. So, it’s not all on just the deficit side. It is very important obviously, but we can have the potential to outgrow this over time.
Jason Hosler (10:08):
Well, and even imagine applying that AI to government systems, the cost reductions that could potentially be possible.
Jon Gay (10:16):
That’s a really good point. So, Republicans now hold both houses of Congress. It seems like there could be opportunity for some headway given that Trump has both houses of Congress at this point.
Bruce Hosler (10:27):
What an amazing opportunity, we haven’t seen this for years. There’s been periods of time where Republicans have had all three and the Democrats have had all three. But it seems like they are all pulling together like at no other time in my lifetime right now to try and implement the Trump agenda, if you will, and he’s moving at breakneck speed.
Look how fast he’s been moving on getting his appointments, trying to get them ready. The Senate looks like they’re going to start in January before the 20th on approving these appointments that he has. I think they’re going to be making some changes that’s going to change the way the government works, and I think the markets are responding to that.
They’re very hopeful, and that’s why the markets have traded up, that maybe some of the waste and inefficiencies of the government can be changed to improve the American economy.
Jon Gay (11:23):
Alright, so we’ve spent a lot of last episode and this one talking about the positive outlook for the second Trump administration. I’m going to play devil’s advocate and flip the script on the three of you here a little bit.
Tariffs, that has been a big topic since the election. He’s talking about tariffs to try to stimulate the domestic economy, but without having the infrastructure here in the U.S., how risky can that be to levy tariffs on goods as they come in from other countries, and retaliation even?
Jason Hosler (11:49):
Trump has used tariffs in his first presidency. We got to see some of that: the steel industry, for example, automotive tariffs. The ones that actually went into place were not as steep as some of the ones he threatened, and he threatened a lot more tariffs as a negotiating tool in cases to bring people to the table.
A man who wrote the book Art of the Deal, putting out tariffs as threats as he has already post-election, I think we’re going to see a lot more threats for tariffs necessarily than tariffs getting actually put in place. But I do expect that we’ll see some get put in place.
It’ll be interesting to see the longer-term effects of that. If you combine tariffs with incentives to build here in the United States, to build production for chip manufacturers, to build data centers, to train the AIs, to build energy production, to power the data centers, to invest in nuclear and other fuel sources, to power those energy generating sources – that could all work together.
The tariffs could, in the short run, negatively impact some industries, but I think if you look at a holistic standpoint of investing in the American economy and American self-sufficiency, and American technological supremacy, you’re going to see a long-run outcome that is very bullish for America across multiple industries.
Alex Koury (13:25):
Let’s not forget as well, earlier this year, even President Biden increased tariffs on Chinese imports. He wanted to create balance, fairness in the economy as well. So, this isn’t … I don’t think a Trump thing or a Republican thing, this already has been happening.
Bruce Hosler (13:43):
I think the term to use is Trump is threatening higher tariffs.
Jon Gay (13:47):
Fair point. Well, another thing he’s threatening and we’re not sure what this is going to look like, is deportations and sending folks back to other countries that are here in various capacities, and there is a concern on some level, that might hurt the economy because some of these workers do jobs that Americans aren’t doing. What are your thoughts on that?
Bruce Hosler (14:05):
Let’s just start with the first thing that they’re threatening. He’s got Tom Homan as his border czar, and they’re threatening to go after the criminals in a big way and deport all the criminals. I think it’s going to be very hard for any naysayers to say we should not deport criminals.
Now, beyond the criminals and the people that have come illegally, just recently in the news, all of the costs that New York has been paying to put up these people in hotels and giving them cell phones and giving them cards for food, everything like that – Elon Musk and Vivek Ramaswamy have already been addressing how much money these cities have been spending, and then coming to the federal government and asking for money.
So, if the federal government is not providing that money and the states aren’t going to have to pay, that’s money that can be used for the American citizens. People that are sympathetic for the migrants, they may not look on this favorably, but some of the rest of the people are like, “If you came to this country already and you waited the 10 years and you paid all the prices to become a citizen, you don’t seem very interested in these people that have cut to the front of the line and just come to the country and haven’t paid their price to be fair citizens of the United States.”
Jason Hosler (15:24):
In the United States today, it’s hard to interact in our culture and not know somebody who is from another country. I think we all have friends that are immigrants to the United States, and we know that they’re good people, and we’ve learned about that process, which can often be long and difficult to become a United States citizen. And when you see their struggles as contributing members of society, you want them to be able to contribute to our society, and you want people to be able to do it the right way.
Now, if we do see economic impact from deportations because like you alluded to, those people are doing jobs that Americans don’t want to do, maybe we’ll have to pay higher prices for things like agricultural products where we have people who are out in the fields picking berries and other food products. Those higher prices though, are going to be because we’re paying people a fair wage to actually go and do that work.
I think it’s hard to make the argument that we should support a class of people that we’re not paying a fair wage to.
Bruce Hosler (16:36):
I want to address one other cost that was revealed to me the other day. If you are here illegally and they begin deporting criminals first, and then they start to deport other people, I think there’s going to be a large amount of people that will elect to remigrate back to their country for this reason.
If you are caught and deported, the law requires that you cannot enter the United States legally again for 10 years. There may be a lot of these people that choose to self-remigrate because they want to come back to the U.S. legally, and they don’t want to have to wait 10 years to try and figure a way to get into the legal migration system.
So, a lot of the people that have migrated here illegally may choose to go back out of the country so that they don’t get shut down for the next 10 years.
Jon Gay (17:28):
Interesting theory. I think we’re going to leave it there. We will see how all of this plays out in the Trump Presidency. And I know the three of you really have an expertise in the financial piece of this and the economic piece of this.
If our listeners want to reach out to you to talk to you about their individual circumstance as it relates to the larger picture or specifically, for what they’re looking at going for their financial futures, how do they best find you at Hosler Wealth Management?
Alex Koury (17:51):
So, here at down in Scottsdale, you can contact us at (480) 994-7342. In Prescott, give us a call at (928) 778-7666 or visit us on our website hoslerwm.com You can request a call and we’d be happy to speak with you.
Jon Gay (18:12):
Alright, pleasure as always gentlemen. Happy New Year, we’ll talk again in a couple of weeks.
Bruce Hosler (18:16):
Thanks, Jon.
Jon Gay (16:20):
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