logo
Good economic data is bad news for Trump's interest rate push

Good economic data is bad news for Trump's interest rate push

Fox News5 days ago
Recent economic data has been very solid. Consumers have shown continued resiliency, boosting retail sales up 0.6% for the month of June. The labor market remains solid.
And while the stock market isn't the economy per se, key market indices, including the broader-based S&P 500, continue to hit all-time highs.
Normally, this would be very good news for a president's economic agenda. But given America's current fiscal situation, it is hindering one of President Donald Trump's main focal points – the hope that the Fed will substantially lower its target interest rates.
The American fiscal situation is a precarious one, which has brought about several debt downgrades from the rating agencies, the last being in May, while U.S. debt is supposed to be the "safe haven" investment for the global financial system.
The U.S. debt/GDP ratio is about double what most entities believe is a manageable and sustainable ceiling. Our deficit as a percentage of GDP is at wartime or deep recession levels, without the U.S. being at war or in a recession.
And with such a heavy and growing debt load, now at $37 trillion, the interest cost on that debt is around $1 trillion, which is more than we spend on defense. Having debt financing costs exceed defense spending is not a signal of a healthy country.
President Trump and his administration are rightfully focused on the excessive current interest cost on our debt. And, with more than $9 trillion in debt that has or needs to be refinanced this year, plus another couple trillion from new deficit spending, the cost of debt financing matters.
The higher the interest rates on Treasury debt, the higher the cost of financing and refinancing. That leads to higher deficits, and all else being equal, even higher interest rates as more debt needs to be financed. Wash, rinse and repeat and debt costs and deficits will keep going higher.
So, it is understandable that the president wants lower interest rates – even back to 1% or lower as he has recently mentioned. However, there are several challenges with that.
Back to where we started, strong economic data and all-time highs in the market do not signal that interest rates are holding back economic activity. This makes it harder for Fed Chairman Jerome Powell and the Federal Open Market Committee (FOMC) to justify rate cuts given their own mandate, although not impossible as their actions are often headscratchers.
It's also somewhat of a moot point, because the Fed's target rates directly impact what's called the short-end of the yield curve (aka short-dated securities like 1-month T-Bills, as an example). For the U.S. to term out its debt (refinance short-dated securities for a longer amount of time, like 10 years), the relevant yield is that of the longer-dated securities.
While sometimes the Fed's rate has an indirect impact on those longer-dated securities, in recent times, it has not. In fact, we saw after the Fed rate cuts in the fall of 2024 that yields on 10-year Treasurys increased instead of decreased.
There's no guarantee that further cuts would have the desired effects, and could have other consequences, like re-stoking inflation.
For longer dated securities, the market sets the pricing, and supply and demand is front and center.
It used to be that global central banks consistently increased their buying of U.S. Treasurys, but over the past decade or so, they have actually been net sellers, as countries around the world have been hurt by the mismanagement of the U.S. dollar as the world's reserve currency and are looking for ways to decrease their dependence upon it.
So, today's Treasury buyers are those focused on price, and with recent debt downgrades and concerns about the U.S.'s fiscal foundation, they are demanding more of a premium to hold U.S. debt for longer periods of time.
With the U.S. continuing to run large deficits, adding more supply to this price-sensitive demand, all else equal, only drives up the yields and U.S. debt financing costs.
So, fiscal policy – which is managed by Congress, not the Fed's monetary policy – is what's most critical today.
The Trump administration is currently looking at other ways to bring the interest rates down, impacting the demand side for Treasury.
The recently signed GENIUS Act may provide one avenue. Treasury Secretary Scott Bessent has said, "Recent reporting projects that stablecoins could grow into a $3.7 trillion market by the end of the decade. That scenario becomes more likely with passage of the GENIUS Act. A thriving stablecoin ecosystem will drive demand from the private sector for U.S. Treasuries, which back stablecoins."
This, if it comes to fruition, may help lower rates, although again, it may only increase demand for shorter duration Treasury securities.
There are a slew of other tools and opportunities that are likely forthcoming that can create other avenues of demand for Treasurys and help lower yields.
The tools available to the administration may be effective and lower rates, maybe even to the extremely low levels desired by the president. But it will only be a temporary solution if our deficits and debt problems aren't addressed. Furthermore, it may come with the cost of more inflation, as accommodative policies don't happen in a vacuum and have economic consequences.
Powell and the Fed may not be willing to give on interest rates – at least at the levels the president is seeking – if economic data remains strong. President Trump will have other options, but they are only bandages. We will not a have a permanent solution until a concerted effort is made to fix our debt and deficits.
Orange background

Try Our AI Features

Explore what Daily8 AI can do for you:

Comments

No comments yet...

Related Articles

Stock Market Today: These Are Today's 10 Biggest Earnings Reports You Need to Know
Stock Market Today: These Are Today's 10 Biggest Earnings Reports You Need to Know

Yahoo

time27 minutes ago

  • Yahoo

Stock Market Today: These Are Today's 10 Biggest Earnings Reports You Need to Know

Stock Market Today: These Are Today's 10 Biggest Earnings Reports You Need to Know originally appeared on TheStreet. Good morning. Today, the S&P 500 is seeking out its sixth consecutive close and its 16th record close of the year, while the similarly-situated Nasdaq Composite is looking for Lucky 17. Whether they can notch those new milestones will likely come down to how investors react to a serious slate of earnings reports today. As of this writing, that response seems to be tame. The Nasdaq 100 is up 0.17%, leading major indexes today. The S&P, +0.12%. The Dow and Russell are down several bips. Rise and Shine: Earnings Reports Today, we are on the lookout for more than 170 reports per Nasdaq. Many of them happened this morning. Here were the top 10 reports (by market cap) happening in the A.M. Here are some of the highlights from this morning's earnings: Boeing surprises investors again, but safety concerns loom (-2.8%) Here's the ten biggest A.M. reports (by market cap) that were had our eyes on: A.M. Movers: Cadence Design, Brown & Brown, and Others Atop the S&P 500 this morning is Cadence Design Systems () , leading the index with a 10.4% march this morning. The company, which creates circuit boards and systems on chips (SoCs) posted an earnings beat and raised after a strong earnings report. Its sales were up 20% and earnings were up 29%. Meanwhile, with the shoe on the other foot, insurance broker Brown & Brown () is down 9.5% this morning. It reported an 8.2% increase in premium revenue, but that growth was shrouded by a 10% drop in net income. Among other movers, pharma stocks such as Merck () and Eli Lilly () , are also tumbling today. Outside of the S&P, Novo Nordisk () is leading market losers today, down a steep 20% after firing its CEO. (More on that in short order.) Updates Ongoing We will update this live blog throughout today. You can check back periodically for updates and recaps of big events. Stock Market Today: These Are Today's 10 Biggest Earnings Reports You Need to Know first appeared on TheStreet on Jul 29, 2025 This story was originally reported by TheStreet on Jul 29, 2025, where it first appeared.

What to Expect From General Mills' Q1 2026 Earnings Report
What to Expect From General Mills' Q1 2026 Earnings Report

Yahoo

time27 minutes ago

  • Yahoo

What to Expect From General Mills' Q1 2026 Earnings Report

Minneapolis, Minnesota-based General Mills, Inc. (GIS) manufactures and markets branded consumer foods worldwide. With a market cap of $27.7 billion, the company operates through four segments: North America Retail, International, Pet, and North America Foodservice. GIS is slated to release its Q1 earnings on Wednesday, Sept. 17. Ahead of the event, analysts expect GIS to report a profit of $0.81 per share, down 24.3% from $1.07 per share reported in the year-ago quarter. It has exceeded analysts' earnings estimates in each of the past four quarters, which is impressive. More News from Barchart Tesla Just Signed a Chip Supply Deal with Samsung. What Does That Mean for TSLA Stock? Dear Microsoft Stock Fans, Mark Your Calendars for Aug. 1 Is Lucid Motors Stock a Buy, Sell, or Hold for July 2025? Stop Missing Market Moves: Get the FREE Barchart Brief – your midday dose of stock movers, trending sectors, and actionable trade ideas, delivered right to your inbox. Sign Up Now! For the current year, analysts expect GIS to report EPS of $3.66, down 13.1% from $4.21 in fiscal 2024. However, analysts expect its earnings to surge 4.4% year-over-year to $3.82 per share in fiscal 2026. Over the past year, GIS shares declined 24.8%, underperforming the S&P 500 Index's ($SPX) 17.1% gains and the Consumer Staples Select Sector SPDR Fund's (XLP) 2.8% returns over the same time frame. On Jun. 26, GS stock increased by more than 1% after RBC Capital Markets upgraded the stock to "Outperform" from "Sector perform" with a price target of $63. The consensus opinion on GIS stock is skeptical, with an overall 'Hold' rating. Out of the 20 analysts covering the stock, opinions include four 'Strong Buys,' one 'Moderate Buy,' 13 'Holds,' and two 'Strong Sells.' The mean price target of $55.15 indicates a 10.6% upside potential from current price levels. On the date of publication, Kritika Sarmah did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Sign in to access your portfolio

Carnival Corporation's Q3 2025 Earnings: What to Expect
Carnival Corporation's Q3 2025 Earnings: What to Expect

Yahoo

time27 minutes ago

  • Yahoo

Carnival Corporation's Q3 2025 Earnings: What to Expect

Miami, Florida-based Carnival Corporation & plc (CCL) is a cruise company that provides leisure travel services in North America and internationally. With a market cap of $34.7 billion, the company operates through four segments: NAA Cruise Operations, Europe Cruise Operations, Cruise Support, and Tour and Other. CCL is expected to release its Q3 earnings on Monday, Sept. 29. Ahead of its release, analysts project the company to report a profit of $1.31 per share, up 3.2% from $1.27 per share in the year-ago quarter. The company has surpassed Wall Street's bottom-line estimates in each of the last four quarters, which is impressive. More News from Barchart Tesla Just Signed a Chip Supply Deal with Samsung. What Does That Mean for TSLA Stock? Dear Microsoft Stock Fans, Mark Your Calendars for Aug. 1 Is Lucid Motors Stock a Buy, Sell, or Hold for July 2025? Our exclusive Barchart Brief newsletter is your FREE midday guide to what's moving stocks, sectors, and investor sentiment - delivered right when you need the info most. Subscribe today! For the full year, analysts expect CCL to report EPS of $2, up 40.9% from $1.42 in fiscal 2024. Moreover, its EPS is expected to grow in fiscal 2026, rising 14% year over year to $2.28. Shares of CCL have climbed 72.2% over the past 52 weeks, outperforming both the S&P 500 Index's ($SPX) 17.1% uptick and the Consumer Discretionary Select Sector SPDR Fund's (XLY) 23.9% gain over the same time frame. On Jun. 27, Carnival stock closed up more than 4% after Moody's Corporation (MCO) upgraded Carnival's long-term corporate rating to Ba2 from Ba3. The consensus opinion on CCL stock is highly optimistic, with an overall 'Strong Buy' rating. Out of the 25 analysts covering the stock, opinions include 18 'Strong Buys,' one 'Moderate Buy,' and six 'Holds.' The mean price target of $31.29 indicates a 5.2% upside potential from current price levels. On the date of publication, Kritika Sarmah did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Sign in to access your portfolio

DOWNLOAD THE APP

Get Started Now: Download the App

Ready to dive into a world of global content with local flavor? Download Daily8 app today from your preferred app store and start exploring.
app-storeplay-store