Fed's Dilemma: Boost Job Growth or Fight Inflation

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Sep 25, 2025

Kathy Jones, Chief Fixed Income Strategist at Charles Schwab, joins to unravel the Fed's tightrope walk between battling inflation and fostering job growth. She discusses the unprecedented drama surrounding the Fed meeting, including the political pressures impacting its independence. Kathy delves into the implications of rising fiscal deficits on Treasury yields and foreign demand for U.S. debt. She also shares key insights for bond investors, emphasizing the importance of duration and quality amid current market uncertainty.

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INSIGHT

Fed's Risk-Management Cut

The Fed cut rates 25 basis points as a risk-management move to balance rising unemployment risk against sticky inflation.
Chair Powell said there's no risk-free path, highlighting the tight tradeoff between jobs and inflation.

INSIGHT

Supply Constraints Limit Fed Tools

The Fed's struggle stems from supply-driven problems that monetary policy can't directly fix.
Tariffs and immigration limits are tightening supply, complicating the Fed's dual mandate.

INSIGHT

Independence Debate Risks Credibility

Concerns about political pressure on the Fed raise risks to central-bank credibility, though the Fed has historically pushed back.
Kathy Jones remains optimistic but says even the debate over independence is damaging to confidence.

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At last week's remarkable Federal Reserve meeting, the Fed's decision to cut the baseline interest rate for the first time in 2025 took a backseat to questions over which members would get to vote at the meeting. On this episode, Kathy Jones, Schwab's chief fixed income strategist, joins host Mike Townsend to break down the Fed's struggle to balance inflation concerns with a softening job market—and what they might do if they get it wrong. They also look at the political drama surrounding Fed Governor Lisa Cook and the controversial confirmation of Stephen Miran to the Fed board, spotlighting serious questions about the central bank's independence and the broader implications for financial markets. Kathy shares her insights on the bond market, including the impact of fiscal deficits, Treasury yields, and the weakening dollar. She offers practical considerations for bond investors in a time of uncertainty, emphasizing the importance of a bond's term and quality.

And Mike provides the latest on two key issues in Washington: the growing risk of a government shutdown and the debate over the future of corporate-earnings-reporting requirements.

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