Fed Watch – 7/25/2025

The below transcript is a literal translation of the podcast audio that has been machine generated by Notta.

Hello. Thanks for joining us today for this edition of Fed Watch. I’m Brian Beaulieu and it is July 25, 2025. And the data continues to look okay.

Redbook data, which is our weekly look at retail sales is holding up. We’ve got 5.1% year-over-year increase for the second week of July, which is fine. We’re beating the rate of inflation. Department stores actually moved into positive territory from negative territory from the week before. So that’s good too. So consumers out there doing their thing, which is consuming.

The weekly economic index from the Dallas Federal Reserve, that trend remains positive. It remains encouraging. So if I’m on the Federal Reserve FOMC meeting and I see that data, I think, eh, we’ll just hold, which is exactly what the bond market is continuing to tell the Federal Reserve. Although obviously some people are whispering other things in other ears. The money supply deflated for the month of June was up 1.8%. Well, that’s the 3/12 rate of change, but it’s in phase B. It’s continuing to accelerate. In fact 1.8%, while may not sound like much, that was the fastest growth rate in a little over three years. So they may not be lowering interest rates, but they are putting liquidity out there. We’re on trend with pre-COVID. So it’s normal folks and that’s good.

Then the data gets a little wonky. We looked at existing home sales, that data came out this week and it was poor. Permits for single family homes was poor June also. I mean, it was just worse than normal activity from May to June, year-over-year declines, I mean, it was just not good. And automobile production in North America for the month of June was also off, it was more negative than normal compared to May. And that’s consistent with the retail sales weakness that we’ve been talking about. So if the Fed is looking at housing, if the Fed is looking at automobiles, then they could say, yeah, things are getting weaker out there. Maybe we should lower those interest rates.

It’s easy to make the case that they should or could. We were looking at the data earlier today, and this is reminding us of the mid-1990s period. So if there is some rate cutting to be done, we see it happening at around 25, 50 bips. And that’ll be about all she wrote. People are looking for their 200 basis point decline. I’m not sure what it is that they’re looking… that would have to be a catastrophic weakness in the economy, not the sectoral weakness that we’re seeing limited to housing and major expenses like automobiles. For now, incomes are going up. People are handling their debt. There’s no real need to panic. So why go there?

And fixed rate mortgages, 30-year fixed rate mortgage, virtually unchanged, down one bip from last week at 6.74%. The US government 10-year bond yield is also essentially unchanged. It’s down two bips from last week at 4.41%. So the bond market is not seeing the need for this sort of fervor of decline that others are seeing at least last time we looked at those options prices. So could there be some? Yes. Is it going to move the mountain? No. Is it going to make life a little bit easier for Jerome Powell and company? Yes. Is it going to make everybody happy? No.

And if you join us next Tuesday for our July 29th webinar, you’re going to see Lauren Baker and I present compelling evidence from our perspective, it’s quite compelling evidence that inflation is going through its trough now and is going to be clearly on its ascent. It’s not going to go right back up to 6% or anything, but we’re going through the nadir and it’s beginning to go the other way. And that’s going to really block the Federal Reserve’s ambition if they have any ambition to lower interest rates. It’s going to be interesting second half of the year to be sure.

Thanks for joining us for this edition of Fed Watch. We’ll see you next time.