Tariffs, Rate Cuts, and the Fannie-Freddie IPO: Parsing Market Signals | August 11, 2025

Jeff (: 00:18

Welcome to Optimal Insights. I'm your host, Jeff McCarty, Vice President of Hedging and Trading Product at Optimal Blue. As you may notice, Jim Glennon's not here today, but joining me as always are James Cahill and Alex Hebner, our resident economic gurus from the desk. Our clients and industry partners have long relied on Optimal Blue for trusted insights and commentary. And these podcasts are an evolution of our commitment to keeping the industry informed. Let's dive into today's episode.

All right, we got a great episode today. We're gonna dig into the tariffs in detail a little bit. We'll talk about Trump's social media post last Friday talking about the Great American Mortgage Corporation and what that might mean for us. Well, not a lot of details around that, but we'll speculate on what that might mean going forward. We'll talk about the data coming ahead this week, some important inflation numbers.

and think about where the Fed is at currently and start looking ahead to the September Fed announcement. So quick look at the data. Obviously after the jobs numbers and the jobs revisions from Friday the 1st, so about 10 days ago, saw treasuries rally. So we saw rates drop some, although maybe not quite as much as anticipated.

Uh, and we actually saw over the weekend into this morning, a little bit of a backup and rates again. So we've got the OB MMI at 6.627. we were getting close to that six and a half number didn't quite get below six and a half. jump back up a little bit, like we said, the 10 years at 4.27. So still, you know, even with these, these large employment revisions and, know, looking more and more like a, a drop in.

rates the Fed still well within a range, really haven't dropped too much. So we'll dig into that and more here in a minute with Alex and James.

Jeff (: 02:17

All right, welcome Alex and James as always. Thanks for joining us.

Alex Hebner (: 02:20

Thanks for having us.

James Cahill (: 02:21

Thank you.

Jeff (: 02:22

So Alex, let's get right into it. Let's start with tariffs. What are the recent developments around tariffs?

Alex Hebner (: 02:27

Yeah, feels like this has been kind of the event we've been waiting for now terrorist to finally go into effect. you know, they're, they've been here and there in effect, but, this is kind of the big one when, when all those that were not able to negotiate a deal, tariffs went into effect for them. And then those that did negotiate a deal, they're, they're now facing those, those tariffs, ⁓ rates that they agreed to in said deals, that August 1st deadline followed by August 8th go live.

For those rates, I think three of us, we were just kind of parsing through the data available to us so far. We were looking at some Goldman Sachs numbers this morning of who's paying It does appear that maybe not the American consumer so far is bearing the brunt of the costs, American entities, both the consumer and companies are bearing the brunt of the costs. what were we seeing? Somewhere in the range of like with 22 % of that being on the consumer.

remainder companies currently paying them, which I think the three of us kind of all agreed that's likely to change. We're likely to see companies now that we know that tariffs are in effect, we know the rate, and we know that they're indefinitely in effect, likely to see companies probably begin to pass that cost on to consumers.

Jeff (: 03:38

Yeah, James, you had a good take about kind of first movers there.

James Cahill (: 03:42

Yeah, I think I was saying a few months ago on one of the podcasts you're one of these large corporations and you can take the hit on the chin for a while, right? You don't want to be the person to move first, to raise your prices. You don't want to, you know, put a bad taste in the consumer's mouth or get flagged by everyone as the person raising prices. So as long as you have that wealth of imports or the ability to just kind of take some of this hit.

you're gonna do it for as long as you can. As Alex was saying with this Goldman Sachs data, like that very clearly seems to be what's happening. The importers are the ones who are paying the tax right now, but there's kind of a runway on that, right? They still need to make their margins, they still need to have profits every year, and the way to do that is to pass the price on to the consumer. So it's something that is kind of coming our way.

Jeff (: 04:36

There's also just this dynamic, you know, we're seeing more and more of these one-off deals, whether it's particular companies or particular industries or portion of industries, of one-off deals. saw the Nvidia announced over the weekend. it's a little bit just, well, it's tough to keep track of obviously, but it's also, you know, it'd be tough to estimate what, the effect to the end consumer will be because it is, it can go almost product by product or

portion of a product by portion of a product.

James Cahill (: 05:04

Yeah, I would say, you the idea is eventually the price is going to get passed on or that the price is higher, if it's portion of the product by portion of the product, or if it's the whole thing at once, the result will ultimately be the price inching up, right? that's kind of the great fear with Ford was, hey, we're building, you know, part of the motor in Mexico, we're getting the tires from Canada, we're getting the leather from, you know, somewhere in China. So all these pieces are getting

tariffed individually, even if we assemble the whole thing in America, so it doesn't have any tariff on it in America, all the pieces do. think that with Nvidia, that's kind of the shock that they're gonna take is, hey, these chips are being used in everything. if the price on them or the components are going up, that's really gonna eventually bleed into everything, software, technology, hardware.

Alex Hebner (: 05:55

Not to mention companies are already paying a steep premium for those products.

James Cahill (: 06:00

I would take it on the upside of this, you know, for the American budget is we have raised about $130 billion so far from these tariffs. Now, whether that's from effectively a quiet tax on the American people or not, it is always good to be trying to chew down that budget and potentially to have more money to work with, right? If right now we're in kind of a stagnant.

or slowing jobs environment, having more money to coming in and to work with could help empower the government to help produce jobs and keep the economy flowing. So that's kind of good. I also, I think this is kind an interesting take that I saw, but effectively the administration has created another monetary policy tool here, right? You can control inflation with the interest rates.

slowly ticking them up over time is helping to kill inflation. Ticking it down over time would speed it up. Right now we have an inflationary item in the tariffs. You could back these off. The administration could back these off and help lower the price of goods. So that is something that they have the ability to do. That actually puts a lot of power of and fiscal policy in the hands of the administration.

Jeff (: 07:12

Yeah, that's an interesting take. I saw something similar. It was talking about the difference transitory and tariff shocks. if tariffs are transitory, there was a study that if they are transitory, then the tariff increases are neither inflationary nor contractionary.

So if tariffs are they imports and improve the trade balance, whereas permanent trade balances largely unchanged. So I guess that's something for us to hope for. If these tariffs are maybe it doesn't have any inflation. And it

the trade balance overall. So there's something to hope for.

Alex Hebner (: 07:56

And we already have seen trade balance improvements down from in the whole $70 billion on imports to about $60 billion. So it's already moving in the direction that they are hoping for.

Jeff (: 08:09

But James, to your point, we have already made so much money off of these tariffs. It's going to be difficult to convince the government that we want to get rid of that source of revenue, I think. ⁓

James Cahill (: 08:22

Yeah, it's easy for the government to get a little addicted to where they're making their money,

Alex Hebner (: 08:27

that on top of the fact that they already philosophically

were hoping to reshore American production and that is not something that happens overnight or in any, by any economist definition of a transitory period. think that falls in the five to 10 year time window by then any inflation there would be heavily factored in.

James Cahill (: 08:46

Alex, we were talking about this before we started the podcast here, but just so right now at this kind of 15 % base rate, 20 for some countries, there is a question mark around whether that number is high enough. I'm sure everyone is scared by that sentence. Is the tariff number high enough? But to get companies to reshore right at 15 to 20%, is it worth them still kind of eating this still

passing this on to the consumer or should they spend the next five years trying to build a factory in the United States so that they can get the goods produced here?

Alex Hebner (: 09:23

Right. And I, and I some reading that in fact that it likely isn't high enough. It's likely somewhere north of 30 % is, is when that, that, that crossover point is, you know, it depends on the industry, depends on what you're but it's somewhere north of where, where these trade deals have been arrived at a 15 to to, account for, you know, the steeper costs of us, us labor, cost doing business, United States, uh, you know, environmental regulation, whatever it may be, those costs all add up and.

Right now, the crossover point is definitely higher than the negotiated rates that we've done with some of our major trading partners.

Jeff (: 09:55

All right, so let's try to tie this back to rates ultimately. We've got some big numbers coming up this week that we may see the effects of tie into, right, Alex?

Alex Hebner (: 10:05

Yeah, yeah, no, we, it's inflation week. So we're getting CPI on Tuesday, PPI on Thursday. predicted to be a little bit higher again, ⁓ 2.8 % year over year. so, so moving in the wrong direction that from, from where they want it to be. but we'll have to see where it lands. you know, I think there's, maybe a little, I don't know what to call it, ⁓ fog on, on data now, after the, firing of the,

head after the latest jobs numbers. do you know, I, I really hope not, but, I would hope no one's making the decision to, ⁓ fudge the numbers a little bit to, keep themselves employed. you know, you know, maybe, maybe we'll see a surprise to the downside. but right now it's, it's expected to just be trending just a little bit higher up to 2.8 % there.

Jeff (: 10:46

So we've got that on one side of the equation, right? Looking at where inflation growth is, much are tariffs gonna affect just overall natural growth versus just increasing costs of goods. That has been our primary focus, obviously, just reiterating what happened about 10 days ago with the jobs numbers. We had the huge downward revisions from previous months.

Alex Hebner (: 10:49

Mm-hmm.

Jeff (: 11:13

and now we were kind of obviously this renewed focus on the job portion of the equation,

Alex Hebner (: 11:21

Yeah, absolutely. think that segues really well into the next conversation. I think we want to have just in regards to, makeup of the FOMC board two weeks ago, I believe it was now Kugler announced she'll be returning to academia, uh, which left open a spot on the FOMC board. Also voting member, for Trump to nominate. he took Stephen Mirren who is, uh, office of the white house analysts.

and, he, yeah, yeah, no, he's a big proponent Mar-a-Lago Accords, Trump on, you know, you know, the economic, plan that, that Trump has, ⁓ big supporter of soft money. yeah, I mean, he's, he's in, in favor of the tariffs, ⁓ goes without saying. what he does is essentially gives Trump's, core group of voters for, for lower rates and, and the rest of board does seem to be.

Jeff (: 11:44

Kind of one of the architects of the ⁓ tariff policy,

Alex Hebner (: 12:07

coming around the idea that it's time to cut rates, at least on the short end of the curve. the addition of Marin, it'll give three of the 12 voting members ⁓ will heavily be in favor of rate cuts. ⁓ So it's not an insignificant voting block, so to say.

James Cahill (: 12:13

the addition of Marin, it'll give three of the 12 voting members who have been papered.

Jeff (: 12:25

Yeah, that's what kind of I've been seeing too. We talked about to use a 2025 buzzword, a vibe shift a little bit, does make sense. mean, that employment data came out two days after the last Fed announcement. So now they've got this new data. They're going to react to you said, we know where 25 % of the voters stand explicitly. seems like, you

potentially the rest other parts of the board come around to, ⁓ you know, potentially downward shift in rates. What are the CME futures saying?

Alex Hebner (: 12:54

Uh, they're showing a very strong chance for a cut in September, north of with a 50 % chance by the October meeting of having seen 50 base points and cuts. So looking like back to back cuts here.

Jeff (: 13:04

Yeah. And even 44 % for three cuts. we've only got three meetings left this year close to even money right now that we'll see three cuts.

Alex Hebner (: 13:16

Yep. Which would take us down to base rate 3.25 to 3.50, I believe, dot plots, you know, longer term dot plots have shown that, that they, show the long-term fed funds rate to be somewhere in the threes, ⁓ somewhere in the mid threes. So, would probably be a lower bound. I would imagine for the time being barring any sort of, you know, black swan event, ⁓ COVID-19 or war of some sort.

Jeff (: 13:38

Good. Any other data coming out this week that we should keep an eye on?

Alex Hebner (: 13:43

Because some consumer sentiment and the University of Michigan survey University of Michigan kind of man on the street Take on inflation, know, the CPI and PPI numbers that that's the hard numbers that businesses and consumers were seeing on the shelves The University of Michigan is far more of a it's the sentiment of the average average person you can take it as so Even if you know inflationary data shows that inflation is tame

James Cahill (: 13:43

some consumer sentiment and the University of survey, University of Michigan man on the on inflation. know, the CPI and PPI numbers, that's the hard numbers that businesses and consumers are seeing on the The University of Michigan is far more of a sentiment of the average person. So even if inflationary data shows that inflation is

tame,

Alex Hebner (: 14:08

If people are under the impression that inflation on the rise, ⁓ that can lead to a whole other slew of ⁓ economic behavior. So just keep an eye on that one. I'd more so keep an eye on CPI. That's what those voting members are going to be going off of. than that, it's a relatively light week on the data front.

Jeff (: 14:25

Alright, so let's pivot a little bit to one of the fairly major development that happened Friday. Trump on True Social, he posted a picture of himself at the New York Stock Exchange Great American Mortgage Corporation ⁓ logo listed, which is... ⁓

on the desk this morning pointed out, it was probably already taken by somebody, but...

Alex Hebner (: 14:52

I thought they already took

it, but that might've been their Bitcoin thing or whatever.

Jeff (: 14:56

Right.

but obviously a lot of implications of ⁓ it started to get passed around by various other politicians. Pulte reposted it several times on Twitter on X, excuse me. so left to lead a little bit between the tea leaves, but you know, I think the main takeaway is that it's obvious that taking, Fannie and Freddie public.

Again, it is a focus of this administration it's something they would like to get done in some form this year. So, you know, I felt pretty strongly at the beginning of the year. This wasn't something that this administration was going to try to do this year. There are too many details to figure out and too many implications to figure that out. we've seen, they do like to move fast. you know, it does appear

on there that said November,: 2025

Alex Hebner (: 15:53

Yeah, it's interesting. The timeframe has seemed to be immensely sped up. This first came, you know, quote unquote on the menu, back in the spring. And then it kind of fell away as people made the realization that it probably wouldn't, it definitely wouldn't result in lower rates and, um, it'd be a divestiture and we'd lose the implicit guarantee of the agencies if it were completely released. so throughout the middle of the summer, it was kind of off. Didn't really hear if anime Freddie Mac in the news. And then last week, as you said, Jeff, you know, this posting reading the tea leaves, what did, what did they mean by this? Um, and there's not a whole lot of.

concrete data on what exactly they're looking to do so far and and the information we do have seems to kind of contradict itself in certain ways what we do know is They said they want to do an initial public offering Potentially with Fannie Mae and Freddie Mac under the same stock ticker right now They currently trade because they're they're separate entities. They they trade separately, you know under Fannie Mae and FFMCC, you know, respectively for their common shares

But yeah, they seem to want to group it under this MAGA stock ticker, do an initial public offering, but also they've said nothing about releasing them or the guarantee going away. It seems like they want to retain the best of both worlds. Maybe just claim a private market when American investors can buy shares of Fannie Mae Freddie Mac, maybe some form of dividend will, T some form of dividend that could be paid.

again, without fully releasing them and they're still under government purview.

Jeff (: 17:17

Yeah, I think through some of the interviews that the Wall Street Journal and done after this post, the admin's weighing IPO of anywhere between five and 15 % of Fannie and Freddie Stock, as you said, combined with the goal of raising $30 billion, valuation of around $500 billion is what people are estimating. Who knows how close that

that number is obviously both those stocks spiked on the news. them are up around 20 % or the past couple of days. So yeah, a lot of details to figure out about how exactly it would happen. think both of them staying under conservatorship is a good estimation. Again, not to rock the boat.

know, doing this, type of limited offering of some of the stock, not, not fully taking them public. know, obviously something we'll, we'll keep a close eye on. We are scant on details here. you know, we've, we've talked a lot about what it means for those companies, exit conservatorship in the past. We'll, review that more in the future as we go. Any other thoughts on this right now?

Alex Hebner (: 18:23

Not really. I'm really just waiting on additional details of what exactly I mean. They should be forthcoming soon. I mean, it's, it's already mid August and if they're targeting something in November.

have to see, they'll have to release something if they're actually planning to do something here shortly.

Jeff (: 18:38

Yeah, I think there's so many details to figure out. this is the MO of the administration, right? It is to move some big pronouncements figure out the details as you go a little bit. it certainly gets things moving. We can say

Alex Hebner (: 18:54

Absolutely does. I'd also keep in mind, just keep tariffs in mind. We saw an April 15th initial date on those tariffs. didn't go into effect till August. if we're targeting some form of announcement by November, maybe a Q1 or Q2 of 2026 might be the official date if they go through with all this.

James Cahill (: 19:07

Any Q1 or Q2, Q3, or might be the official data they go through.

Jeff (: 19:12

Yeah, I like that. We certainly didn't see any sort of ⁓ meaningful change in mortgage spreads or rates. We have seen mortgage rates tighten a little bit recently, but we will absolutely keep an eye on that.

My long-term view is you remove any sort of explicit or implicit guarantee, you're going to see a relative increase in mortgage rates. Investors are going to require a higher return. So you could see higher guarantee fees and things like that, which will ultimately increase rates for the borrower.

So as we've talked about, that's something certainly the administration would not want to see or at least explicitly see where it's incredibly obvious to the end borrower.

Alex Hebner (: 19:57

They'll need to provide assurance is what I'll say. That rates won't increase.

Jeff (: 20:02

Yeah, yep.

All right, well yeah, keep an eye out for those CPI numbers this week. That'll be the big mover. Obviously any other announcements around this offering of stock of Fannie and Freddie, we will keep a close eye on and we will keep you up to date next week on any changes over the coming week. thank you, Alex and James.

Alex Hebner (: 20:23

Thank you.

James Cahill (: 20:23

Thanks for having us.

Jeff (: 20:25

That's it for today. Join us next week for another episode of Optimal Insights, where we'll continue to provide you with the latest market updates and analysis to help you stay ahead. Check out our full videos on YouTube. You can also find each episode on all major podcast platforms. Thank you for tuning in to Optimal Insights.