I apologize in advance, because the title is clickbait. If I could predict where mortgage rates were going, I wouldn’t be telling you and I would be writing this blogpost from my megayacht. However, there was an interesting article in Politico (Inflation jumps as Trump, Powell confront weakening labor market) that addressed the factors going into the economy for the final quarter of 2025, and I think it helps explain why interest and mortgage rates haven’t been as predictable as usual.
Top 3 Takeaways:
- Prices are going up because new tariffs are making imported goods more expensive.
- The Fed isn’t sure whether to cut interest rates yet – inflation is still high, but jobs are slowing.
- The president is pressuring the Fed to lower rates, adding political tension to the decision.
The Commerce Department’s latest consumer‑price index shows prices rising faster than expected, with core inflation edging higher despite the overall slowdown in hiring. Analysts trace much of the uptick to the administration’s new tariffs, which have added hundreds of billions of dollars in costs for manufacturers that rely on imported components. Companies are now deciding how much of those extra expenses to absorb versus passing on to shoppers; a calculation that is still unfolding.
Fed Chair Jerome Powell’s recent remarks at the Jackson Hole symposium underscore the dilemma. On the one hand, the Fed remains wary of tightening monetary policy too early, fearing that a premature rate cut could reignite inflation that has not yet fully receded from the pandemic‑era spike. On the other, the “downside risks to employment are rising,” and a softer jobs market would normally justify easing borrowing costs. Powell hinted that the upcoming September FOMC meeting could be the moment the Fed signals a modest rate reduction—provided the data supports it.
Political pressure adds another layer of complexity. President Trump has repeatedly urged the Fed to lower rates, even launching investigations into Powell’s oversight of a costly Fed‑headquarters renovation and attempting to remove Governor Lisa Cook. While the administration’s tariff agenda fuels price pressures, it also makes any aggressive rate‑cut move politically attractive, especially ahead of the 2026 midterms when voters remain highly sensitive to rising living costs.
In short, the Fed stands at a crossroads: balance the inflationary drag from tariffs against a cooling labor market, all while navigating heightened political scrutiny. Not an easy job.
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