Rates on Hold: What It Means for Your Wallet & Business

The Federal Reserve's reluctance to cut interest rates has become one of the most hotly debated economic topics of the year. Despite mounting pressure from the White House and financial markets, the Fed has held rates steady at 4.25-4.50% for the fifth consecutive time. What's driving this steadfast position, and what does it mean for your financial future?

At the core of the Fed's cautious approach is a persistent concern about inflation that refuses to fully retreat. While the job market remains relatively stable—with unemployment hovering between 4.0% and 4.2%—inflation data continues to move in the wrong direction. The Fed's preferred measure, the PCE index, actually increased from 2.4% to 2.6% in June, moving further from their 2% target. Adding complexity to this picture are aggressive tariff policies that have directly pushed up prices across imported goods categories. Furniture prices jumped 1.3%, appliances surged 1.9%, and computers rose 1.4%—all in just one month.

Fed Chair Jerome Powell finds himself walking an extraordinary tightrope. On one side, he faces increasingly personal attacks from President Trump, who has even suggested Powell's handling of a building renovation could justify his dismissal. On the other side lies the Fed's institutional commitment to data-driven decision-making rather than political expediency. This tension has even manifested within the Fed itself, with two governors dissenting at the July meeting—the first such dual dissent since 1993. As September's meeting approaches and the Jackson Hole Symposium looms in late August, market expectations fluctuate wildly with each new economic report. The central question remains: How much independence does a central bank need to ensure long-term economic stability? Follow our analysis as we continue tracking this high-stakes economic standoff and its implications for your financial wellbeing.

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Episode Transcript

Speaker 1 (00:00):
So here's the big question, right?
Why won't the Federal Reservecut interest rates?
I mean, there's immensepressure, especially, you know,
coming from the Oval Office.
It's something I've beenthinking about a lot,
particularly now they've decidedto hold steady again.
That's the fifth time in a row.
Rates are still sitting at 4.25percent to 4.50 percent.
So this deep dive, this is ourchance to really unpack what's

(00:23):
going on behind those Feddecisions.
What does it actually mean foryou, for your wallet, for your
business?
Okay, let's try and peel backthe layers on this.

Speaker 2 (00:33):
Well, if you had to boil it down to just one thing,
the Fed's cautious approach.
It's really all aboutuncertainty.

Speaker 1 (00:39):
Uncertainty yeah.

Speaker 2 (00:40):
Federal Reserve Chair , Jerome Powell.
He's been very clear Stubborninflation is still the main
concern.
Bill number one Absolutely, andhe's actually pointed fingers

(01:05):
specifically at that couldreally damage the job market
unnecessarily.
It's a tough balancing act.

Speaker 1 (01:10):
OK.
So if inflation is the bigworry and they're walking that
kind of tightrope, what aboutthe job market?
How is it actually lookingright now?
Does that give them any wiggleroom?

Speaker 2 (01:19):
Actually, the employment side looks pretty
solid, as they say.
Pretty solid, ok, theemployment side looks pretty
solid as they say Pretty solid.
Ok, yeah, the unemployment rate, it's held steady, been in a
pretty narrow range like 4.0percent to 4.2 percent,
basically, since May 2024.
Ok Now, job growth has sloweddown a bit, sure, but we're
definitely not seeing, you know,mass layoffs everywhere.
So it's not the side that'ssetting off immediate alarm

(01:41):
bells.

Speaker 1 (01:42):
Gotcha, so the job market feels relatively stable.

Speaker 2 (01:45):
Yeah.

Speaker 1 (01:46):
Which is good news, I guess.
But inflation is still, as yousaid, stickier than anyone hoped
, exactly.
And that brings us to thisother layer, right, the tariffs,
the impact of these reallyaggressive tariff policies.
How are they actually messingwith the inflation numbers?

Speaker 2 (02:02):
Right, and this is where it gets you know really
insightful President Trump'stariff policies.
They've ramped up a lot thisyear and what's fascinating, or
maybe concerning, is how they'redirectly impacting the very
inflation numbers the Fed uses.

Speaker 1 (02:15):
How so.

Speaker 2 (02:16):
Well, take the Fed's favorite measure, the PCE index
personal consumptionexpenditures.
It basically tracks what youpay for stuff.
That jumped.
It went from 2.4 percent in Mayup to 2.6 percent in June.
That's moving further away fromthe Fed's 2 percent target, Not
close.

Speaker 1 (02:33):
Yeah, the wrong direction.

Speaker 2 (02:34):
Precisely so it makes it harder to tell what's broad
economic inflation and what'sjust well, these policy driven
price hikes.

Speaker 1 (02:41):
And are we seeing that in specific things, like
stuff people actually buy everyday?

Speaker 2 (02:45):
Oh, absolutely.
You see the price increasesexactly where you'd expect goods
that are heavily imported.

Speaker 1 (02:49):
Like what.

Speaker 2 (02:50):
Well, furniture, for instance, prices up 1.3 percent
in just one month.
Appliances they jumped 1.9percent, Computers up 1.4
percent.

Speaker 1 (02:58):
Wow, those are pretty significant jumps for one month
.
They really are, and Fed ChairPowell to you.

(03:24):
Know your checkout receipt.
But here's something I wonderabout If the tariffs are so
clearly pushing up prices andmaybe skewing the data, why
isn't the political heat more onthe tariffs themselves instead
of just on the Fed for how theyreact to the inflation?
Is the Fed kind of taking thefall here?

Speaker 2 (03:43):
That's a really sharp question and it perfectly
highlights this politicaltightrope Powell is forced to
walk.
Yeah, he's facing these attacksfrom President Trump getting
more and more personal,demanding immediate rate cuts.
I mean, trump even suggested,ridiculously, that how Powell
handled a building renovationcould be grounds for firing him.

Speaker 1 (04:01):
Yeah, a building renovation, seriously, yeah,
that's pretty extraordinary.
It really shows the level ofpressure, that very personal
kind of attack.
How does the Fed even operate?
How does it maintaincredibility facing that kind of
direct challenge?

Speaker 2 (04:16):
It's an incredibly difficult position but Powell
and you know the rest of theFOMC they're sticking to their
strategic reasoning.
As Powell himself put it, ifyou move too early you might end
up not getting inflation allthe way back down.

Speaker 1 (04:30):
Right, the first risk .

Speaker 2 (04:31):
If you move too late, you do unnecessary damage to
the labor market.
That's the other side of it,the balance Exactly, and this is
where that institutionalindependence becomes so vital.
It lets the Fed make these hardcalls, often unpopular ones,
based on the economic data, notpolitical wins.
It shields the economy fromwell potentially damaging

(04:53):
short-term political moves.
Their core message seems to belook, they'd rather be
criticized for moving too slowlythan risk unleashing inflation
again.
And maybe, just maybe, despiteall the frustration from
politicians and markets, thatcautious approach is what the
economy actually needs forstability right now.

Speaker 1 (05:06):
OK, so that cautious approach brings us to what's
next, the September suspense,you could call it.
The next big meeting for theFed's policy committee, the FOMC
, is in September.
It's interesting becausethere's a longer gap than usual
between the July meeting andthis one, that longer gap.

Speaker 2 (05:22):
it definitely allows more time for new data to come
in, but yeah, it also creates alot more uncertainty in this one
.
Right, that longer gap.
It definitely allows more timefor new data to come in, but,
yeah, it also creates a lot moreuncertainty in the meantime.

Speaker 1 (05:29):
Has it affected what markets expect?

Speaker 2 (05:31):
Oh, absolutely.
Market expectations for aSeptember rate cut.
They've been all over the place.
Before Powell's last pressconference, odds were maybe
around 65 percent, afterwardsdropped closer to 40 percent.

Speaker 1 (05:43):
Wow, quite a swing.

Speaker 2 (05:44):
Yeah, and there's something else brewing
internally too, suggesting maybegrowing pressure inside the Fed
.
Two Fed governors, bothappointed by Trump, actually
dissented at the July meeting.
They voted for a rate cut.

Speaker 1 (05:56):
Two dissenters Is that common?

Speaker 2 (05:58):
No, not at all.
It's actually the first timesince 1993 that two governors
have opposed a rate decision atthe same time.
So it signals, you know, somereal disagreement bubbling up.

Speaker 1 (06:08):
Okay.
So despite that internalpressure, Powell keeps saying
he's data dependent.
What specific data points arethey really watching?
What would give him the coverhe might need to actually start
cutting?

Speaker 2 (06:20):
Well, it really comes down to two main things the
jobs reports and the coreinflation data.

Speaker 1 (06:25):
Right.

Speaker 2 (06:26):
And, interestingly, the July jobs report which came
out after the last Fed meeting.
It showed things slowing down abit.
Job growth came in at onehundred forty seven thousand
down from June, and theunemployment rate was expected
to maybe tick up slightly tofour point two percent.

Speaker 1 (06:42):
So a bit softer.

Speaker 2 (06:43):
Exactly that's the kind of softening that could
potentially give Powell thejustification the cover, as you
put it to start cutting rates.
It lets him say see, the datais showing some weakness.
Now's the time, rather thanlooking like he's just giving in
to political pressure.

Speaker 1 (06:57):
So what are the odds now?
What's the smart money sayingabout cuts later this year?
Is September still on the table?

Speaker 2 (07:03):
You know, the smart money does seem to still be
betting on cuts before the yearis out.
But the exact timing, that'sstill pretty murky.
Goldman Sachs economists, forexample they still see a chance,
maybe somewhat above 50%, for acut in September.
Others are thinking maybeOctober or even later.

Speaker 1 (07:20):
So still quite uncertain.

Speaker 2 (07:21):
Very much so.
The key things everyone'swatching are unemployment trends
Does it keep ticking up?
Core inflation Does it startmoving down again?
And those tariff driven pricehikes Was that just a one month
blip or is it sticking around?
And one more thing to keep aneye on the Jackson Hole
Symposium that's coming upAugust 21st to 23rd.
Powell often uses that speechto send some pretty important

(07:44):
signals about policy direction.

Speaker 1 (07:45):
Right.
Jackson Hole is always closelywatched.
Yeah, OK so pulling it alltogether.
What does this all mean for you?
Listening right now?

Speaker 2 (07:52):
Well, it means you're watching this ongoing pretty
high stakes standoff.
Really it's the Fed's datadriven approach versus some
really intense politicalpressure.
And, worth remembering,powell's term as chair is up in
May 2026.
President Trump has alreadymade it clear he plans to
replace him, so the future ofthe central bank itself is kind
of in play.
Yeah, absolutely.
For now, though, the Fed seemsreally determined.

(08:13):
They're signaling they'll letthe economic data, and not
political tweets, guide theirhand.

Speaker 1 (08:18):
Stick into their guns .

Speaker 2 (08:19):
Right.
That message is clear Better tobe criticized for being slow
than to risk letting inflationrun wild again, which you know
leaves us with a pretty bigquestion for you to think about
how much independence does acentral bank really need for
economic stability, especiallywhen that independence
frustrates markets, frustratespoliticians?
When should economic policy beinsulated from politics?

(08:39):
And well, when should it maybebe more responsive?
It's a fundamental tension.