Fed Watch – 10/17/2025

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

Hello, I’m Brian Beaulieu, Chief Economist, ITR Economics. Today is October 17, 2025, and welcome to Fed Watch. Very interesting times right now with the weak employment data, Fed saying some things about lowering interest rates, so let’s break it down.

We expect the labor data to be weak. We talked about this months ago, immigration policy being what it is that was going to hurt the employment data. We’re going to be running way below historical norms when it comes to adding jobs to the economy, partly because of supply, partly because of demand. Don’t read a whole lot into that. Don’t worry about the unemployment rate either, that tends to be a lagging economic indicator. We’re continuing to focus on weekly retail sales data. We started tracking that during COVID, you may recall, and that’s doing well. It’s running over three percentage points above the rate of inflation, so the consumers out there spending, our real incomes are continuing to go up. Credit card balances, delinquency rate coming down, more people are making full payments on their credit cards as a percent of all accounts. So those tea leaves are telling us that it’s not doom and gloom out there, so take a breath.

But it is true, I bet a fair amount that the Fed is going to lower interest rates again. They’re feeling a lot of pressure to do so politically. They’re getting pushed about, so it wouldn’t surprise me to see at least one more decline in 2025, nor is it going to really matter a whole lot. We are more interested in what’s going on in the marketplace. And there’s the real story. The 10-year government bond yield dropped to 3.97%. And usually I don’t parcel it down to that decimal point, but it’s below four, which is noteworthy. This is the lowest US government 10-year bond yield that we have seen in a year. You have to go back to September of 2024 to find one that was about 20 basis points lower.

My take on what the bond market is telling us is that they’re more concerned about growth prospects for the US economy than they are about inflation. I don’t know that they’ve totally discounted future inflation, but with the tariffs being banked about again, vis-a-vis China, the focus on the employment data, even the Fed, if you listen to them, they sound, for them, negative about the economy. I think that the bond market is reacting to those same things. This keeps us right in that sweet spot we thought we would be through the end of this year in the first one to two quarters of 2026. These interest rates are good. They’re not great, but they are certainly reasonable.

30-year mortgage is at 6.27%. Is it going to come down further? Probably. How much? Not much. And is it still relatively high compared to other metrics? Yeah, there’s still a relatively high mortgage rate, but it’s not going to get a whole lot better. And home prices are going up at the same time, so you have to really run the math to see how much more you need on the way down for interest rates before you make that move into the home. We continue to think that’s a very smart thing to be doing, by the way, in the next two to three quarters.

Take advantage of these low interest rates. We see the economy improving gradually in 2026, and interest rates likely abating as we go through 2026. We see the tariff confusion subsiding over the course of 2026. When people are confused, when they’re being this cautious, there’s some opportunities, so seek out those opportunities. If you’re going to borrow some money, this is a good time to be doing it. The economy is not about to go tumbling down. You’ll be able to get a good ROI.

Thanks for listening to this edition of Fed Watch.