The Fed Might Need To Hold Rate Cuts As CPI Runs Hot

Interest rates have been the talk of the town for the last few years, as they soared under the disastrous Biden Administration policies. Rampant inflation and no solid footing for a recovery put the Federal Reserve in an unwinnable position, having to keep interest rates inflated near all-time highs. President Trump's new policies have taken over, and we have seen a progression back toward normalcy. But the rates are still running high.

Trump has called on Fed Chair Jerome Powell to slash the rates recently, and there is a good case for doing so. A slow labor market combined with falling inflation gives hope for a possible cut. But there is another problem and that is the Consumer Price Index. That shows inflation is still running year over year at about three percent. That is still well above the Fed's goal of two percent.

Economist Vance Ginn says because of how interest rate cuts are performed, we might need to hold back on cutting things too soon.

"The way they do it is by buying debt from the government, and issuing new currency...if they issue more currency without an increase in goods and services, we could have even more inflation," he says.

It is a long road on the battle to bring inflation down. Again, while there have been positive steps, it still might be a bit too early. Because as anyone knows, pumping out more cash into circulation does nothing but devalue the dollar, and drive up more inflation.

A rate cut right now also just might not help. Sure, it would help with mortgages and things of that nature, but the savings you would get there would then get wiped out by rising inflation.

Now where it could help a little is the national debt. On our debt, the United States is paying about $1 trillion a year. In theory, cutting the interest rates would make the net interest payments go down.

"But that does not do anything to help out our longer term fiscal problems, because of excessive government spending," Ginn says.

It is a no-win situation, but there is promise on the horizon. Especially after the passage of the Big, Beautiful Bill, which is set to deregulate and open up American business.

"I think between focusing on the pro-growth policies, deregulation, and reining in government spending...that would really allow the economy to grow, and put less pressure on higher interest rates," says Ginn.

The Fed's next meeting is in September. Ginn says we likely though will not see a cut until later this year, or early in 2026.