The December CPI release is expected to validate what markets are already signaling:
the Federal Reserve’s latest rate cut exists formally, but not functionally.
Neither the most recent cut nor the previous ones have translated into real-world
financial conditions.
1. 13-Week Treasury Bill: The Fed’s Own Rule Is Not Met
Historically, the Federal Reserve has followed a consistent rule when easing policy:
auctions of the 13-week Treasury bill should already be trading at least
25 basis points below the target rate prior to a cut.
As of December 17, the 13-week bill yields
3.543%, while the official policy rate stands at
3.75%. This gap clearly indicates that even the Treasury market
itself does not fully believe in the effectiveness of the latest rate cut.
Yield Changes Since October 1 (Two Official Cuts Totaling 50 bp)
| Instrument | Yield Change |
|---|---|
| 5-Year Note | +1.5 bp |
| 10-Year Note | +4.5 bp |
| 30-Year Bond | +11.3 bp |
There has been no meaningful decline in medium- and long-term
Treasury yields. This is critical because these maturities directly influence
loan and mortgage rates.
From a debt-management perspective, a sharp decline in long-term yields would
complicate future Treasury underwriting. In this sense, the lack of rate transmission
is not accidental—it reflects structural constraints.
2. Mortgage Rates (FRED): No Real Transmission to Households
Data from FRED confirm that mortgage rates have barely responded to the Fed’s
easing rhetoric.
| Mortgage Type | Oct 1 | Dec 16–17 | Change |
|---|---|---|---|
| 30Y Jumbo | 6.486% | 6.500% | +0.014 bp |
| 30Y Conventional | 6.262% | 6.205% | -0.057 bp |
Banks typically apply a spread of approximately +2.5 percentage points
over the 30-year Treasury yield for regular customers.
This results in an effective real 30-year mortgage rate of:
| Period | Real 30Y Mortgage Rate |
|---|---|
| Oct 1 | 7.215% |
| Dec 17 | 7.328% (+11.3 bp) |
Rather than easing, borrowing costs for households have effectively increased.
What the Numbers Confirm
Taken together, Treasury yields and mortgage data confirm that the Fed’s rate cut
is symbolic rather than operational. Liquidity conditions, credit
costs, and long-term financing rates remain largely unchanged.
This explains why markets have shown limited reaction to the policy move and why
real economic transmission has stalled.
CPI Outlook: Inflation Still Too High
The November 2025 CPI year-on-year reading is expected to remain within a
2.8%–3.1% range, broadly in line with prior months.
This level is:
- Well above the Fed’s stated 2% target
- Still distant from the 2.5% inflation objective envisioned as far back as 2011
Under these conditions, achieving sustained disinflation toward target levels
appears unrealistic in the near term, especially without genuine rate transmission
across the yield curve.