Piper Sandler agrees with Donald Trump that the Federal Reserve needs to lower rates, as the president’s barbs at Chair Jerome Powell grow louder. “Politics aside, [Trump] isn’t wrong. Just because the overall economy and market, which is increasingly a reflection of the largest businesses and wealthiest consumers, appears to be chugging along doesn’t mean that lower rates aren’t warranted,” Michael Kantrowitz, the firm’s chief investment strategist, wrote. “Historically speaking, every single broad-based improvement in the U.S. economy began with an improvement in housing, and for that to occur we’ll need to see lower rates.” Kantrowitz noted that just a modest decline in short- and long-term interest rates could lead to greater breadth in economic activity and stronger corporate earnings — both of which he said have been lacking in recent years. He also pointed to a somber housing market as another reason to lower rates. Kantrowitz said growing inventory and price declines as factors that pose a threat to economic growth. His note to clients comes as investors await the release of the Federal Open Market Committee’s minutes from its June meeting, which will be out at 2 p.m. ET. They also come as Trump increasingly calls for the Fed to lower rates. On Wednesday, Trump said in a Truth Social post that fed rates are “AT LEAST 3 [percentage] Points too high.” Trump is also reportedly considering naming a “shadow chair” until Powell departs his role. Despite Trump’s comments and worries over the Fed’s credibility, the U.S. stock market remains near record levels. The S & P 500 scaled to an all-time high last week and is up 6% for the year. .SPX YTD mountain S & P 500 performance over the past year. Still, a strong market does not assuage what he sees as intense levels of weak affordability and economic bifurcation. “The scar tissue from 2022’s inflation shock has left policy makers and investors overly concerned that lower rates could cause another resurgence of inflation,” he added. “This is recency bias at it’s best, we are not in the COVID backdrop any longer and tariffs as an inflation risk akin to the 2022 experience is exaggerated.” Mortgage rates have remained in a narrow range since early April, leading to historically low demand as homebuyers remain bogged down by overinflated house prices and low supply. Last week saw a strong jump in total mortgage application volume compared with the previous week, however, after a drop in mortgage rates.
