Interest Rate Update April 2025

Tariffs, Unemployment, Recession

What are the factors driving the market and interest rates this month? As you read today’s article, keep in mind that a strong economy pushes interest rates up, and a weak economy pulls interest rates down. These are the factors that appear to be driving the economy the most right now.

Tariffs – How worried should we be about tariffs?

I know the markets have been very shaky about the prospect of President Trumps upcoming Tariffs. My personal opinion is far less worrisome, here is why:

• Dollar Strength – over the past few months the America First agenda has put pressure on our allies and enemies around the world. Not just because foreign aid has been reduced but because the dollar has become stronger in relation to other world currencies. A stronger dollar will help offset the inflation created by Tariffs.
  • For example, if a $1 chocolate bar from Mexico is hit with a 20% tariff, that would raise the cost of the candy to $1.20. But if the Dollar strength vs. Peso rises 20%, that means I could buy that same candy bar for just $.80 or $.96 after the new 20% Tariff.  This is a small-scale example of how Tariffs and currencies would work, but I believe the panic in the markets over Tariffs is overblown, as a stronger dollar will help offset the extra costs.
• Market Equilibrium, Supply and Demand – Another reason I’m not concerned about Tariffs long term is because of what I learned in Econ 101. The basic concept is that if the price of a good goes up that means the demand for that good will go down. As people buy less of a product, the producer has to find ways to cut costs back down to recover the demand. This is what will happen long term with Tariffs, as prices go up yes people will afford to buy less and either the foreign producers will have to produce and sell goods to the US at lower prices or competing companies within the US will step in to provide the lower priced good. Long term this will strengthen American jobs, generate government revenue to offset taxes and bring prices on goods down.

Unemployment – What’s the real story?

The Federal Reserve has made it clear they are not going to lower the Fed Funds rate until inflation falls below 2% or unemployment rises. The problem with their stance is that what they are doing to fight inflation could lead us to stagflation. The other issue is that they are not looking at the Real unemployment picture. The Fed follows the U-3 Unemployment number when they really should be looking at the U-6 numbers to see what’s really going on with American Jobs. Here is the difference between the two:

• U-3 unemployment – only measures those who have lost their jobs within the past 4-6 weeks. Currently this number is just above 4%.
• U-6 unemployment – Measures everyone who has lost their job in the past 4-6 weeks, those who lost their jobs more than six weeks ago and those who are working part time that wish they could find a full time job. In other words, the U-6 unemployment is a real measure of the number of people out there who want a job but can’t find one. Currently the U-6 unemployment rate is over 8%.

Until the Fed starts looking at the real picture they are ignoring millions of people who are out of work and struggling to survive every month.

Recession – is it really coming? Or is it already here?

I’ve read many articles of economist who not only believe a Recession is inevitable, but they claim we’ve already been in a Recession for over a year. We haven’t been told this openly of course because 2024 was an election year and we try to keep bad news at a minimum during election years. 

If you listen to the Stock Market, the economy has been all rainbows and sunshine since covid ended but if you talk to the average consumer things have been tough for many since before covid. This is why so many think the Recession is already here, we just haven’t called it out yet.

Bottom Line:

Interest Rates are driven by the strength of the economy. If the economy is weak, we can expect interest rates to come down. If the economy is strong, we can expect inflation and interest rates to keep going up. 

My personal opinion is that the economy is weak and showing more signs of struggle all the time. Interest rates will come down over the next 12-18 months. The big question is, how far will they drop.

Trevor Carlson