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Whether it is foreign policy or the US economy, Donald Trump is treating everything like a live experiment. He's testing his ideas without due diligence and seeing what sticks.
And the next target is the US financial
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market and by extension the investors who participate in it. Six days ago, the US president made another shock announcement.
He declared a war on credit cards. I want a cap on credit card interest rates because you know some of them are
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28 almost 30%. And that people don't know they're paying 30%.
The people out there you know they're working and they have no idea that they're paying 30%. No way.
We're putting a one-year cap at 10%. And that's it.
They know it. They've really
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abused the public. The credit card companies have totally abused.
I'm not going to let it happen. The US president wants a cap on credit card interest rates.
He wants the rates capped at 10% for one year. This demand has rattled Wall Street.
America's biggest banks were caught offguard.
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You're talking about names like JP Morgan Chase, City Group, Bank of America, and Wells Fargo. These are four of America's biggest banks.
They're pushing back against Trump's plans. Their executives issued separate statements, but they all said the same thing.
We are all for affordability, but
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capping interest rates is not the way to get there. The banks have reached out to Washington to deliver this message.
Their lobbyists have been reaching out to Trump's allies and even Scott Bessent who is the US Treasury Secretary. That's the American equivalent of a finance
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minister. The banks do not want Trump to go ahead with this new plan and they're pushing back hard and there's a reason for that.
You see, credit cards are not just about everyday spending. They're part of a much bigger financial system.
And here's how it works. Banks do not
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always keep credit card loans on their own books. They bundle thousands of these loans together and then they create a bond out of it.
These bonds are then sold to investors and the market for these bonds is massive. It is worth $70 billion.
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So who buys these bonds? Investors from all around the world, big institutions, pension funds, insurance companies, investors managing retirement savings, they all buy these bonds.
And what do they get when they buy these bonds? Well, they are buying future payments.
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That's the money that credit card holders will repay. Both the amount borrowed, that is the principal, and the interest charged by the banks.
Now, Trump's plan could directly hit these earnings. If Trump caps interest rates at 10%, the future payments will shrink.
This creates two broad risks.
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first for the banks themselves. If returns fall too sharply, banks could be forced to use their own money to pay back these bonds and make the investors whole.
So that's the first risk. The second risk is far more serious.
If interest income drops too much, there
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may not be enough cash to pay investors. This raises the risk of losses.
And that is why American banks are worried about Trump's plans. But the US president may not pay heed because he is running a similar experiment with America's central bank, the US Federal Reserve,
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better known as the Fed. Trump wants the US Fed to lower interest rates.
And ever since he's returned to office, he's been pushing the Fed to do this. He's targeted Jerome Powell, the chair of the Fed.
Trump has accused Powell of mishandling the economy and not lowering
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interest rates quickly enough. The Fed has not bent to Trump's pressure, so the US president doubled down.
He's tried all kinds of tactics to undermine the Fed. It began in August last year when Trump moved to remove Lisa Cook.
She's a governor at the Fed. By law, the Fed is
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an independent body. The US president cannot remove a Fed official, including the Fed chair.
So Trump's order was challenged. The matter is now in the Supreme Court.
But even before a ruling could come, Trump launched his next attack. He is going after Powell directly.
Last week, a criminal probe
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was launched against Jerome Powell. It was an unprecedented step.
The probe is about a renovation at the Fed's headquarters. Powell has called the investigation politically motivated.
The threat of criminal charges is a consequence of the Federal Reserve setting interest rates based on our best
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assessment of what will serve the public rather than following the preferences of the president. >> It had a chilling a chilling impact on the dollar.
Soon after the investigation was announced, the dollar saw its biggest decline in almost 3 weeks. There has been some recovery this week, but
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investors are still wary. They believe that Trump's attack could compromise the Fed.
Yesterday, the White House issued a statement. It admitted that Trump is looking for a replacement for Jerome Powell.
>> He's in a decision-making phase. There are um a few people who he likes uh very
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much for this job, maybe less than that. The truth is, like with all decisions, it's a decision for the president to make.
uh and he said to Reuters in that interview last night that he thinks he'll be finally making that decision in the next couple of weeks. So, we will see.
>> So, whether it is the banks or the Federal Reserve, Trump is testing the
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system. But America's financial markets are not a laboratory.
They're the largest markets in the world. The US equity markets alone are worth over $60 trillion and they run on confidence.
Once that confidence is shaken, the consequences will spread beyond American
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borders. But Trump appears more than willing to take that risk.
The world doesn't fit in boxes, so why should your news? From battlefields to negotiation tables, from internet outrage to real world injustice.
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The conversations everyone is having and the ones they're avoiding. It's the same show, but this new year, First Post America gets a new look.
I'm Kerry Johnston and this is First Post America.