Market Musings 8/20/2025
Quick thoughts on the markets and major portfolio news. Not on Ursa yet? Download Ursa from the App Store!
Markets want #RateCuts, but not like this…
Markets have been drifting lower as September #RateCuts optimism cools off. The odds for #RateCuts are still high, but definitely pulling back. You can really see it in riskier assets with growth stocks underperforming value.
What’s driving the shift?
Today, it was the White House ramping up pressure on the Fed calling for a governor to resign.
Obviously with an agenda… a resignation would open a new nomination slot to potentially stack the board with more dovish voices pushing for faster, steeper #RateCuts.
But here’s the twist: that actually hurts market confidence.
You’d think more doves = more cuts = good for stocks, right? Not exactly.
The market wants #RateCuts for the right reasons.
#RateCuts are supposed to mean lower borrowing costs for mortgages, businesses and other loans. However, trust in the Fed is grounded on it being independent and apolitical. If the Fed starts to lose trust, bond buyers may demand a higher risk premium.
Higher interest spreads despite a lower fed funds rate base could cancel out the benefit of the #RateCuts.
How does the market want this to play out?
Step One: #Inflation progress.
The recent data has been looking good, but #Tariffs are a big wildcard. Powell has basically said already there’d already be #RateCuts if not for #Tariffs.
Step Two: gradually weakening #LaborMarkets.
Not collapsing, just softening enough to nudge the Fed. If it’s too weak, suddenly you’re looking at a #Recession…
Right now, the market’s case is:
#Inflation hasn’t really flared up from #Tariffs yet and #LaborMarkets data seems to be weakening. Meanwhile, the Fed minutes released today, but didn’t add much.
However, what markets don’t want is government meddling－that shakes confidence and could undermine the real world #RateCuts effects.
We still maintain #Tariffs impact will take time to manifest into the #Inflation data. Also, while recent #LaborMarkets numbers were weaker, the unemployment rate is still historically low and hasn’t really changed much this year.
The next Fed meeting is still a month away with another round of #LaborMarkets and #Inflation data coming first.
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The statements, opinions and analyses presented here are provided as general information. This article is the opinion of the author. Anything within this article should NOT be considered an investment recommendation or advice. See Ursa’s full disclosures here.
Original Photo by Pixabay.