Good morning on this best day of the week Wednesday, from your hometown lender,

Wholesale inflation (PPI) was the big-ticket data today.

After yesterday’s CPI coming in higher (as expected), it was assumed PPI would follow suit. It did not. PPI was flat on the month 0.00 (I would reference Bluto’s GPA but does anyone remember Animal House these days). So, what does this mean? Well for today, bonds are catching a little bit a bid. We haven’t clawed back much of the recent losses, but we are not losing more now. This is a big win, considering that mortgage bonds lost ground through the day yesterday and before a strong open it was looking like we could have seen pricing deteriorate.

The big news that broke about 8am was that President Trump was imminently going to fire Chairman Powell.

That was retracted about 30 minutes later (likely as President Trump’s staff shared how bumpy that legal road will be and how it could undermine confidence in the US central bank which would push rates even higher), but it does bring up so many ancillary discussions. Do I think Mr. Powell should be fired? No, but I also do not think he has made the right choices with monetary policy. Rates should be lower, and Mr. Powell knows that, but I suspect he doesn’t want his legacy to be one of allowing inflation to reignite.

What, though, is the cost to the economy right now?

The interest payments on the outstanding debt is 1T alone and a reduction of 1% in that interest rate saves the country $300b. That is a lot of cheddar. I suspect Mr. Trump will find some other way to render Mr. Powell ineffective shortly, although not by firing him (although if he did fire Mr. Powell, by the time it made itself through the court system, Mr. Powell tenure as Fed Chair would likely be over) and rates will improve.

Here is a good piece from the WSJ on the perils of interfering with Central Bank’s independence: 

You might be telling your grandchildren about that amazing mortgage rate you snagged in 2021, but Austrians’ great-grandchildren will still be talking about an even better deal.

With the world panicking over Covid-19 and overnight interest rates at zero in 2020, the U.S. Treasury ramped up short-term borrowing to send out stimulus checks. Austria went in the other direction—way in the other direction—selling a 100-year bond with an interest rate of just 0.85%.

Before taking over as Treasury Secretary, Scott Bessent criticized his predecessor, Janet Yellen, for not taking a page out of Vienna’s playbook. He said she should have seized the opportunity to issue longer-term debt like notes—Treasury securities maturing in two and 10 years. So far, though, he’s stuck with her preference for short-term bills, which make up a little more than a fifth of America’s debt.

The appeal of selling so much short-term debt, other than ample demand, is that there might be a way to force down borrowing costs. While yields on Treasury notes and longer-term bonds do their own thing based on global supply and demand, the Federal Reserve can push down short-term borrowing rates, making bills less expensive.

That hasn’t been the Fed’s role during the postwar era, but President Trump has heaped pressure on the independent central bank to do so. The person he nominates to take over as chair next year—or sooner if he can force out Jerome Powell—will be someone he feels he can count on to comply.

Every president has wished for lower rates, but Trump might really need them given America’s mounting debt problems. As debt issued during the crisis at low rates gets rolled over, the average rate on federal borrowings is rising. And the pile of debt is much larger now.

Interest payments are already close to $1 trillion—more than all non-defense discretionary spending combined. The “Big Beautiful Bill” just worsened the trajectory.

Whether lower rates happen naturally as inflation cools or through arm-twisting, though, is it smart for Bessent to ramp up short-term borrowing to trim that interest bill?

It would be like locking in an adjustable teaser-rate on a home mortgage—penny wise, but possibly pound foolish. Many learned that the hard way during the housing crisis. If inflation concerns send rates higher in the future, then today’s gradual rise in the federal government’s interest tab could be much quicker next time. That vicious cycle has destabilized many emerging-market economies.

And what if a compliant Fed kept rates lower even if inflation surged to give Uncle Sam a helping hand? It’s been tried before and it’s called fiscal dominance. The result usually has been ugly.

The upshot for investors? The longer the maturity of your fixed income portfolio, the more value it would lose if the gambit backfires. Just ask the Dummkopfs who bought that Austrian bond five years ago—they’re already down 75% in real terms.

Here are a couple of other bullet points worth sharing:

• $56 Billion: The dollar amount of foreign buyer residential purchases from April 2024 to March 2025, which represents 2.5% of overall existing-home sales, according to the National Association of Realtors.
• 85.2%: The rate of on-time rental payments to independent U.S. landlords in June, marking the third consecutive month of declines, according to RentRedi.
• 58.9%: The percentage of online home shoppers in the top 100 U.S. metros who searched for homes outside of their city in the second quarter, up 11 percentage points from six years ago, according to Realtor.com. 

Stay safe and make today great!