The Fed is in Wait and See Mode

Federal Reserve Meeting: No Rate Cuts Yet

This week was highlighted by the Federal Reserve (Fed) Open Market Committee (FOMC) meeting. Not surprisingly but still a big disappointment, the Fed left interest rates where they were and declined to do additional cuts. As this commentary has discussed, there is a huge disconnect between the economic reporting that shows historical data and the real-time economic trends. 

Bankruptcies Rising: A Sign of Trouble

In the first 7 days of May, we saw 7 large corporate bankruptcies, the same amount seen in the entire month of April 2025. 2024 was a 14-year high in large corporate bankruptcies. Personal bankruptcies are also at historic highs. This isn’t the sign of a strong economy.

Fed Surveys: Minimum Payments and Pessimism

Despite the stock market’s resiliency, there is definite pain in main street America. The Fed’s own reporting indicates this extreme concern. The Philadelphia Fed has said for two surveys running that consumers are predominantly making only the minimum credit card payments. The Fed’s Beige Book (a report of economic outlooks from all the Federal Reserve Regions) shows economic outlooks on par with the Great Recession. 

The Fed indicated in their press conference on Wednesday that they are going to continue to wait to see how inflation and employment trend especially given the trade conflicts.  Interestingly, Chairman Powell did acknowledge that the Fed understands they may have waited too long to raise rates to curb the spike in inflation a couple years ago. Let’s hope they aren’t making the same error.

Student Loan Defaults: Collections Set to Begin

Student Loan Debt is one of the potential concerns entering consumers’ minds.  Most student loans have been on hold since March of 2020. The government has now said that they will begin collection activities to try to recoup as much of the money owed as possible. This could include withholding other benefits like tax refunds and social security benefits.

Of the nearly 10 million borrowers past due, 5.3 million are in default already, meaning greater than 270 days late.  More than 4 million are in late-stage delinquency, meaning 91-180 days past due. The government has indicated that later this summer notices for garnishment of wages will begin to withhold up to 15% of delinquent borrowers without a payment arrangement. This will exacerbate the pain of those individuals, many of whom are already living paycheck to paycheck. Given that a Fed rate cut can take 18 to 48 months to be felt in the economy, it may already be too late for these individuals to benefit from rate cuts. 

10-Year Treasury Auction: Strong Foreign Demand

There was an important 10-year Treasury auction this week that had excellent demand. The Fed is reinvesting more of their runoff and did help to create demand for these bonds. There was an excellent demand from foreign buyers. This helped to assuage fears that foreign buyers would stop purchasing our debt due to the trade conflicts. 

US-UK Trade Deal: Positive Progress Announced

Trade is still on the mind of most market observers. It looks like the outline for a very positive trade agreement was reached with the UK. Especially, since their Brexit from the EU, the UK needs to make strong agreements with countries like the US. Unfortunately, this positive economic news didn’t help interest rates

China Trade Talks: Market-Moving Potential

This weekend, US Treasury Secretary Bessent is scheduled to meet his counterpart from China in Switzerland to see if they can begin talks towards an eventual agreement. With the largest and second largest economies in the world negotiating, any news will be sure to move markets and interest rates.

Looking Ahead: Inflation and Housing in Focus

Next week we get several important inflation reports:

• Tuesday: Consumer Price Index (CPI), NFIB Small Business Optimism Index
• Thursday: Producer Price Index (PPI), Retail Sales, NAHB Housing Index, Industrial Production
• Friday: Housing Starts and Permits, Foreign Bond Investment

Final Note: Expect Volatility from Trade News

Caution is recommended against interest rate volatility due to news that could come from trade negotiations. Make sure you are in communication with your loan officer.