The Fed Shouldn’t Have Cut Rates! Why Jerome Powell’s September 2025 Decision Was a Massive Mistake That’s Making Inflation Worse and Crushing Homebuyers

The Federal Reserve controls the most important interest rate in America. When they cut rates, it’s supposed to help—making it cheaper for families to buy homes and businesses to grow. But sometimes, cutting rates backfires spectacularly.

Here’s what’s happening right now and why it matters.

The Problem: Nobody Believes the Fed About Inflation

The current situation is weird. The Fed cut rates in September 2025, but inflation is still running at 2.9%—way above their 2% target¹. It’s like your doctor telling you to exercise more while you’re still eating donuts for breakfast.

When the Fed cuts rates while prices are still rising, people think: “Wait, are they giving up on fighting inflation?”

Joseph Gagnon from the Peterson Institute warns that businesses are about to pass higher costs to customers, which means more inflation is coming². So investors start demanding higher interest rates on long-term loans to protect themselves.

The result? Even though the Fed cut short-term rates, long-term rates went UP. The 10-year Treasury bond yield is sitting near 4.5%³—higher than before the rate cut.

The Debt Problem: We Owe Too Much Money

Here’s the scary part: The U.S. government owes $36.2 trillion⁴. That’s bigger than our entire economy.

The math is brutal:

• We now spend $880 billion a year just on interest payments⁵
• That’s more than we spend on Medicare or the entire military
• Interest costs have more than doubled since 2020⁶

Here’s the kicker: $3 trillion of government debt comes due in 2025⁷. We have to borrow new money to pay back the old money—at much higher rates than before.

When the Fed cuts rates while the government is desperately borrowing, investors get nervous. They think: “Is the Fed helping the government pay its bills instead of fighting inflation?”

Bond Vigilantes: When Investors Fight Back

There’s a name for investors who punish bad government policies: bond vigilantes. They sell government bonds when they don’t like what they see, forcing interest rates higher.

They’ve done it before:

• 1994: Bond investors got mad about government spending. They drove 10-year rates from 5.2% to 8%⁸
• 2022 in the UK: When PM Liz Truss tried to cut taxes without cutting spending, bond investors revolted. She was forced to quit⁹
• Right now in the UK: Bond rates hit 4.8%—the highest in 17 years—wiping out the government’s budget room¹⁰

As one expert puts it: Outstanding U.S. debt has exploded from $5 trillion before 2008 to $28 trillion today¹¹. Bond vigilantes have more ammunition than ever.

Why This Matters for Regular People

Here’s the crazy part: The Fed cuts rates to help the economy, but it can make borrowing MORE expensive for everyone else.

Here’s how it works:

1. Fed cuts short-term rates ✓
2. But investors get worried about inflation and debt ✗
3. So long-term rates go UP ✗
4. Your mortgage rate goes up ✗
5. Business loans get more expensive ✗
6. The economy slows down ✗

Real example: Mortgage rates track long-term bonds, not Fed rates. So even though the Fed cut rates, your home loan could still get more expensive.

The Fed’s Impossible Choice

Fed Chair Jerome Powell is stuck. The job market is cooling—unemployment hit 4.3%, the highest since 2021¹². But inflation is still too high, and politicians are pressuring him to cut rates faster¹³.

Powell called the September rate cut “risk management”—basically admitting they’re flying blind¹⁴.

The problem is trust. As JPMorgan’s economist noted: It’s rare for the Fed to cut rates when “stocks are at the highs and inflation is above target”¹⁵. Markets are confused about what the Fed is actually trying to do.

The Bottom Line

Sometimes the medicine makes you sicker.

When the government owes too much money and prices are still rising, cutting interest rates can signal that the Fed cares more about short-term politics than long-term stability.

Remember what happened in the 1990s. A political advisor said: **”I used to think I wanted to come back as the president or the pope. But now I want to come back as the bond market”**¹⁶—because bond investors had more power than politicians.

Today, with $36 trillion in debt and persistent inflation, we might be heading for the same showdown. The Fed can cut rates all it wants, but if bond investors don’t buy it, everyone else pays the price. This is what is called a STEAL MAN! A Steal man is the best case for a position. In this case, we do not hold this position. We agree with this position HERE! 

Sources

¹ U.S. Bank, “Federal Reserve Calibrates Interest Rate Policy,” September 2025

² NBC News, “Federal Reserve cuts interest rates for the first time this year,” September 17, 2025

³ U.S. Bank, “The Impact of U.S. National Debt on Investments,” February 7, 2025

⁴ U.S. Treasury, “Debt to the Penny,” February 3, 2025

⁵ Pew Research Center, “Key facts about the U.S. national debt,” August 13, 2025

⁶ U.S. Bank, “The Impact of U.S. National Debt on Investments,” February 7, 2025

⁷ CNBC, “The battered bond market starts 2025 facing some difficult issues,” January 1, 2025

⁸ Wikipedia, “Bond vigilante,” 2025

⁹ Wikipedia, “Bond vigilante,” 2025

¹⁰ LGT, “Bond vigilantes hit the UK,” May 13, 2025

¹¹ Reuters, “Who are the bond vigilantes and are they back?” January 14, 2025

¹² NBC News, “Federal Reserve cuts interest rates for the first time this year,” September 17, 2025

¹³ NBC News, “Federal Reserve cuts interest rates for the first time this year,” September 17, 2025

¹⁴ CNBC, “Fed approves quarter-point interest rate cut,” September 17, 2025

¹⁵ NBC News, “Federal Reserve cuts interest rates for the first time this year,” September 17, 2025

¹⁶ Wikipedia, “Bond vigilante,” 2025