Market Update 7/30/25

Interest Rates

As we enter August, the raging debate in the markets centers on the likelihood of an interest rate cut this year. Trump has berated Fed Chairman Powell on social media, increasing pressure on the Fed to cut rates to bolster the economy. As a real estate mogul, Trump’s personal interests would certainly benefit from lower rates. However, the administration must also contend with the federal budget, and the 4.4% interest rate the Treasury must pay on its debt is becoming a significant challenge.

In the first half of 2025, and for the first time in history, net interest became the second-largest Treasury outlay, trailing only Social Security. I expect interest expense to hit $1.5 trillion this year, representing 21.4% of the total $7 trillion federal budget. So, the administration’s push to lower borrowing costs should come as no surprise. The problem, however, is that inflation is once again rising.

While monthly CPI bottomed out in April at 2.3%, it rose to 2.7% by June. We can all debate whether tariffs were the culprit, but that doesn’t change the fact that inflation is increasing. Truth Social posts may generate likes, but they will do little to influence the Fed, and neither will replacing Chairman Powell. The Federal Open Market Committee (FOMC) votes on rates by simple majority and consists of 12 members. The Fed has two mandates: maximum employment and stable prices. Social media pressure is not going to sway the majority of the 12, or at least I hope not. If you want to predict the direction of rates, watch inflation, not social media.