A Look Into The Markets - August 22, 2025

"I've got a worried mind, and it's tearing me apart / I'm trying to find some peace in my heart." - Worried Mind by Ellen Jewell

The Fed Minutes Summary

Below we have provided a summary of the Fed Minutes, which breakdown what Fed members were thinking about the economy, inflation, labor market and the direction of rates.

Remember, at this meeting, two Fed officials preferred to cut rates. It is the first time in over three decades that two Fed officials "dissented" and preferred to take other action than the majority.

Picture the Federal Reserve's July 2025 meeting as a high-stakes family budget discussion, but instead of debating pizza versus tacos for dinner, the Federal Open Market Committee (FOMC) is wrestling with the nation's economic menu: inflation, employment, and growth, with a side of trade policy drama.

The minutes reveal a group of policymakers trying to balance a cooling economy, sticky inflation, and the looming shadow of tariffs, all while keeping the markets calm and avoiding another "kerfuffle" in the bond market. As we know, they decided to keep the federal funds rate steady at 4-1/4 to 4-1/2 percent, but not without some lively debate and a few dissenting voices.

The economy seems to be doing OK but clearly not thriving. Growth in the first half of 2025 was sluggish, with real GDP barely jogging along, dragged down by slower consumer spending and a dip in housing investment.

Inflation, meanwhile, is like that one guest who overstays their welcome, hovering at 2.8% (PCE, y/y) and stubbornly above Fed's 2% target. Tariffs are stirring the pot, pushing up some goods prices, while services inflation is cooling off, creating a bit of a mix. The labor market, though, remains resilient with a low 4.2% unemployment rate, but there are whispers of softening demand; think fewer job postings and pickier hiring managers.

Participants noted that tariffs and policy uncertainty are making businesses hesitant to hire or invest, like someone holding off on a big purchase because they're not sure if the price is about to skyrocket.

The Fed's crystal ball shows inflation creeping up in the near term, in response to the tariffs, but they're hopeful it's more of a one-time price bump than a long-term headache. They're keeping a close eye on whether inflation expectations remain low or start to spiral, because nobody wants a rerun of the 1970s inflation fiasco.

On the flip side, there's worry about the labor market catching a cold if economic growth keeps slowing or if tariffs hit importers harder than expected. The committee's game plan? Stay vigilant, keep the rate steady for now, and be ready to pivot if the data starts asking for a change.

Two members, Bowman and Waller, were ready to ease up with a 25-basis-point cut, arguing that inflation (minus tariff effects) is close to target and the economy's showing some wobbles. The majority chose to hold firm, waiting for economic indicators to stabilize before making changes.

Financial markets, meanwhile, remain optimistic with equity prices climbing and credit spreads tightening, especially for tech giants riding the AI hype wave. The dollar's taken a slight dip, and Treasury yields are holding steady, but there's a nervous undercurrent about tariff risks and potential reserve declines as the Treasury rebuilds its cash pile. The Fed's balance sheet is shrinking smoothly, but they're watching money market rates like hawks, ready to use their tools if things get bumpy. All in all, the Fed's watching and ready to act should the incoming data tell a different story.

Stocks Tech Wreck

Bottom Line: Mortgage rates remain near 10-month lows and there is a risk of higher rates in the near term as mortgage bond prices remain below a ceiling preventing even lower rates - look at the chart section below.

Looking Ahead