In partnership with

The Federal Reserve raised rates for the first time in three years this week, defying President Donald Trump, who’s been calling for a rate cut to offset inflation and lower payments on the $40 trillion national debt. To understand how the Fed's quarter-point rate hike will affect American consumers, BBTW editor Peter Green spoke with Selma Hepp, chief economist at Cotality, a real estate data firm.

The Fed just raised rates by a quarter point. Most of our readers aren't bond traders. What does this actually mean for them?

It actually, ironically, feels like it's going to have a bigger impact on regular folks, because it does raise borrowing costs for pretty much anything that people care about — homes, cars, personal lending, bank cards, things like that. So it does have a bit more impact on consumers than it has on businesses. That's the whole irony.

When the Fed looks at these things, they look [at] an aggregate of what's happening in the economy. But there are so many segments of the economy, and every segment is doing differently. They're not all doing great. So when you say stronger-than-expected economic growth, resilient labor markets, maybe that doesn't speak to you and me every day if I'm not seeing my wages go up, if I see [the] cost of gas. None of this really impacts the inflation pressures that affect consumers — meaning gas prices, food prices. All of those supply shocks are not at all being helped by what the Fed does. 

Will raising rates ever bring inflation down and make life better for ordinary Americans?

That's the thing. They're the ones who are going to be impacted the most. They will be the one[s] who will be spending less by the mere fact that borrowing is so much more expensive. So it does impact consumers, but it doesn't affect the things that really matter, that drive inflation right now. There is a disconnect there [between] the tools that the Fed has [and] something that's maybe out of their power to affect.

So what is driving inflation?

I think it's the war — [the] war in Iran, what's happening in the Middle East, basically the Strait of Hormuz and the flow of oil there. And then, to some degree, immigration policies, because we've seen labor supply has come down significantly because people are leaving. That's impacting, for example, directly in housing — the cost of construction. We have seen wages go up significantly because you have fewer people showing up at these sites. Then at the same time, you have direct competition for some of the labor from AI build-out.

Nearly all of the GDP growth in one recent quarter came from AI investment. Is that hiding weakness elsewhere?

The question is now to what degree does the AI investment mask weaknesses otherwise. We know that residential investment is super weak. We know that commercial is really doing well only because [of] AI and data centers and maybe auxiliary services around that. But there's significant weaknesses in other sectors that are rate sensitive, and that's all being masked by investment in AI.

What would it take to bring prices down for ordinary people?

The core problem is that the Fed can't do much. Their mandate is price stability, but the set of tools in their toolbox is very limited. If we really want to do something about stuff that impacts consumers — AI aside — in terms of the gas and tariffs and immigration, we know what we need to do there. We need to [reverse] our approach to all of that.

In terms of AI, I just don't know that there is much that can be done, because I think the revolution is underway. The bigger productivity gains have yet to really show up in the data. But I think the optimism is there and the potential is there to see that down the road. And that's why you continue to have AI investment at such high levels.

If the Fed is determined to go down this path, how many more hikes will it take to tame inflation?

They're not talking about cuts or hikes in 2027, because I think the idea is that they don't know. They don't know if this is a transitory supply shock or if this is something more consistent. So how many hikes, it's very unclear to me. But even based on their own economic projections, they don't get to a 2% inflation rate until 2029, suggesting that they just keep pushing [the timeline to rein in inflation] out, and they're not confident themselves in their own tools.

We keep hearing about a K-shaped economy: the top 20% are spending, the bottom 20% are losing food stamps, jobs and health care. Does this help them?

That's this big dilemma, to me: none of this helps the K-shaped economy improve, or the people on the bottom improve. As Chair Warsh was saying, the way it does help is by being very aggressive with inflation — bringing down inflation, you're helping those on the bottom by stabilizing their expenses. But that's under [the] assumption that their tools actually do something. They will do something, because it's essentially going to stop consumer spending. But the things that are driving inflation are not necessarily so much tied to consumer spending alone.

Let's turn to housing. The gap between the Fed's rate and mortgage rates is still wide, and the 10-year Treasury is above 5%. Can we expect lower mortgage rates? 

The spread has narrowed. Last I looked, before this meeting, it was 200 basis points. Where people would like to have it is where it was pre-pandemic, at 170. But you just don't have the Fed playing the big role that it had pre-pandemic, which was contracting that spread. Fannie and Freddie buying mortgage-backed securities has helped some. That brought it from 230 to 200, and then it stopped there. It's really the 10-year Treasury that's the issue right now. It's not even the spread. Treasuries depend partially on expectations of the Fed, inflation expectations, debt — that is a huge problem right now, federal debt above $40 trillion — and growth expectations. So it's really hard to see how we could get notably lower mortgage rates, or at least where we were pre-war.

If rates keep rising, will home prices finally come down?

That's usually how mortgage markets work: higher rates, less affordability, that drives to price declines. But we haven't seen that as much in this cycle. Inventory has gone up, but it's still relatively low adjusted to the size of the population. And sellers are not necessarily willing, maybe because they don't need to sell. Usually you get more price discounts when there is a need to sell — for example, the great financial crisis, where people were losing jobs. We don't have that. We have a very low unemployment rate. We have a lot of equity that people have in their homes. They're not forced to move, because moving is very expensive right now, particularly if you have that 3% locked-in mortgage rate. So you may definitely see slowing in home price appreciation, but I am still not convinced we're going to see widespread home price declines.

Those who were lucky enough to have a home and probably a relatively low mortgage rate are fine. The question is, how do we make it available for others to come into the housing market? It's been very challenging for new entrants.

President Trump appointed Kevin Warsh demanding he lower rates, and instead got a hike. Can Trump fire Warsh?

That was the same question people kept asking about Powell. I don't think that he can actually fire him. He can play those games — suing, intimidation techniques — but not firing him. But Warsh is really in a bit of a pickle.

This interview has been condensed and edited.

—Peter S. Green

Big Businesses mentioned this week:

$ANTHZZX ( ▲ 0.45% )  , $OPEAZZX ( ▲ 0.25% )  , $SPCX ( ▲ 2.61% )  , $GOOG ( ▲ 1.33% )  , $META ( ▲ 0.84% )  , $NVDA ( ▲ 2.59% )  , $TRUMP ( ▲ 4.39% ), $KALSZZX ( ▲ 3.43% ), $PSKY ( ▼ 4.18% ), $WBD ( ▲ 0.61% ), $SFTBY ( ▲ 6.37% ), $WLFI ( ▲ 1.9% )  

This week, big business!

• The Usual Suspects

• Trumplandia

• Want more Cheddar?

The Usual Suspects

• The AI-pocalypse: Slow down, you move too fast. Simon and Garfunkel have some words of wisdom for the AI folk (and the rest of us, who’ve suddenly found ourselves living in their world). Anthropic $ANTHZZX ( ▲ 0.45% ) CEO Dario Amodei warned that AI developers need to slam on the brakes or within six to 12 months, AI models could be leading a swarm of agents that could take over the entire internet. “If slowing down bought us even an extra year or two before models reach critical levels of capability, and we used that time to advance alignment, we could greatly reduce the risk that something goes seriously wrong,” Amodei said in a post on his website, just days after two young AI workers went public with dire warnings. OpenAI $OPEAZZX ( ▲ 0.25% ) chief Sam Altman agreed, and said that’s why he’s putting off his planned IPO (Well, maybe that’s why. See below). And then Altman revealed a half-dozen more dangerous AI events. Altman first warned against AI’s power back in 2023, saying “mitigating the risk of extinction from AI should be a global priority.” Even SpaceX $SPCX ( ▲ 2.61% ) CEO Elon Musk grudgingly agreed it was a good idea, but wouldn’t sign on to a stop-work order. Google’s $GOOG ( ▲ 1.33% ) DeepMind chief, Demis Hassabis, is also on board, but none of them have actually decided to halt development of frontier models until safeguards catch up. Even China’s spy chief, Chen Yixin, agreed, writing in a government journal that Ai could threaten the Communist Party’s hold on power. "Abusive use of AI tools by adversaries could directly threaten China's political security, institutional security and ideological security," he wrote, naming Anthropic's Claude Mythos and OpenAI's GPT-5.5-Cyber as threats. But Meta $META ( ▲ 0.84% ) chief Mark Zuckerberg and Nvidia $NVDA ( ▲ 2.59% ) CEO Jensen Huang have said no way to a slowdown, with Huang calling the speed v. safety debate a “false choice.” And Musk joined Zuck and Huang in phoning Trump to bash a plan for an AI regulatory agency, arguing it would entrench market leaders Google, OpenAI and Anthropic. Any rules are unlikely to come from Washington. House speaker Mike Johnson sent the chamber home this week until after the November elections, and while Nvidia’s Huang was on stage at a tech event, President Trump called him, and said opposition to data centers and AI was a “hoax,” and that data centers “make people wealthy.” Britain’s King Charles took the opposite tack, convening a group of AI bosses in England to discuss creating a set of shared principles to govern AI, saying there’s an "urgency" in "adequately considering the existential dangers of such technologies falling into the wrong hands, and being used in potentially catastrophic ways." The calls for a slowdown haven’t significantly affected the share price of most major companies involved in AI, and Morningstar’s main AI index is down just 3% after the concerns grabbed headlines. 

• Waiting in the lobby: Crypto advocates saw their $130 million lobbying campaign for looser regulation shut down in the Senate, as Republicans Susan Collins of Maine and Josh Hawley of Missouri joined Democrats to block the bill that would have shifted crypto oversight from the SEC to the more lenient Commodity Futures Trading Commission. While banks said easing crypto rules would encourage Americans to move savings to risky digital currencies (and cost the banks a lot of business), the Democrats were incensed by President Trump’s multiple crypto ventures that earned him $1.4 billion last year, and said the crypto proposal lacked the teeth needed to keep investors safe and Trump honest. Last year Congress passed rules to help stablecoins, and crypto PACs still have about $123 million in their coffers. The $TRUMP ( ▲ 4.39% ) coin peaked near $75 and is now trading at $1.90 on most exchanges. Stephen Aschettino, a lawyer who represents crypto companies with the firm FoxRosthschild, said the crypto firms aren’t giving up. “The digital assets industry still has real legislative momentum,” he told BBTW in an email. “It just ran into a political dispute over ethics provisions.”

• Predicting growth: With midterm elections, the Iran War and the NFL, this is going to be a big season for prediction markets, which saw trading explode last fall, just on football, $874 million traded the weekend of the first NFL game alone. This year, Kalshi $KALSZZX ( ▲ 3.43% ) saw $2.3 billion in what it calls contracts, essentially sports bets packaged to pass scrutiny with regulators. But it’s getting harder to trade winning contracts. As more platforms join the race, including Novig, Prophet X, and  Rothera, a JV with online brokerage Robinhood, and as more traders gain expertise, the arbitrage margins are shrinking. A new study of billions of dollars in Polymarket $PLYRZZX ( ▲ 0.22% ) trades by four academics shows it’s not the wisdom of crowds or inside info that wins. “Accuracy comes from a minority of persistently skilled traders, around 3% of accounts,” the study noted. “Unlike insiders, whose private edge is localized, these traders exhibit depth and breadth. They react to public news when it arrives, eliminate law-of-one-price violations, and trade against the crowd’s behavioral mistakes. The crowd, in turn, generates most of the volume but little of the information, and its losses fund the minority’s profits.”

• Speaking of the House: Betting on many Congressional and local elections on prediction market platforms can easily be manipulated because trading interest in some races is small, says a report from watchdog group Anti-Corruption Data Collective. Why does that matter? Creating the perception that one candidate is ahead or behind can influence voters’ decisions and fundraising, and in an era  of massive election disinformation, that matters. “With just a few dollars, anyone can create the perception that a candidate has widespread momentum. The ease of manipulating markets is opening the door to a new type of election misinformation,” wrote David Szakonyi, the group’s co-founder.

• Media notes: The NFL is slicing its game roster into so many broadcast and online packages that there’s growing concern it will push viewers away from the league as the cost of watching games keeps rising. The popular Sunday Ticket, now on Alphabet’s $GOOG ( ▲ 1.33% ) YouTube, costs $378 a year, up 30%, and the number of games it shows is down 10% as the league feeds demand from cable operators and networks desperate to hold on to viewers before they cut the cord. The Ellison family’s recent takeover of Paramount $PSKY ( ▼ 4.18% ) is showing signs of fraying. After right-wing provocateur Bari Weiss was given the reins to Paramount’s CBS News, her first move was to remake 60 Minutes. Ratings are in and they were down 21% from last year’s season premiere. Meanwhile, a federal judge has ordered Ellison, California AG Rob Bonta and the Writers Guild of America to sit down next month and try to reach a settlement in the case that’s blocking Ellison’s takeover of Warner Bros. Discovery $WBD ( ▲ 0.61% ) . 

• OPEN IPO? While the rest of the AI-osphere is wondering whether the machines are gonna take over the world or at least steal the companies’ non-existent profits for themselves, Open AI’s $OPEAZZX ( ▲ 0.25% ) Sam Altman is talking about a new funding round that would value the company at $1.2 to $1.5 trillion, after a March financing with Softbank $SFTBY ( ▲ 6.37% ) valued the firm at $852 billion. Amid concern over rising interest rates and whether there’s enough cash in the market, the growing public concern about the threat of rogue AI agents has given Altman convenient cover to (once again) speak publicly about postponing OpenAI’s IPO from this fall to next year. “I actually think that, given everything happening with safety, right now would be an ill-advised moment to go public, and we don’t feel pressure on that,” Altman told Fortune. Anthropic has already said its IPO is on hold until next year.

• War Story: The great fuel crisis is here, say oil execs, and the world is running short of available refined products, with the shortage driving diesel to $6.40 a gallon, and gasoline to $448, up from $3.20 a year ago. The blame falls squarely on the U.S.-Israeli war on Iran, which has closed the Strait of Hormuz, through which one in five barrels of oil used to move. And rebel Houthi forces in Yemen now control the other path for Gulf oil, through the Red Sea. An Iranian-backed attack on a Saudi pipeline has now cut all oil shipments from the Kingdom, so the shortage of oil is expected to worsen, as the northern hemisphere approaches winter. Estimates from the Climate Solutions Lab at Brown University show Americans have spent about $107 billion more on fuel this year, largely due to the Iran war, but also in part due to Russia, as Ukraine strikes refineries there in a  bid to immobilize Russia’s invading army. Meanwhile the Iran War has added $38 billion to the $40 billion pile of U.S. debt. Economists say the only way to bring down inflation and oil prices is to stop the wars in the Gulf and Ukraine. 

• Dying on Blueberry Hill: U.S. berry grower Driscoll’s, which supplies about a third of the berries eaten in the U.S., thought it was on to something 15 years ago, when it opened operations in China, hiring local farmers to grow its proprietary breeds of blueberries, once an exotic treat in Asia. But it didn't count on Chinese agrobiz stealing its seeds, and copying its patented harvesting equipment, the Wall Street Journal reports. China now produces twice as many blueberries as the U.S., up 25x since 2010. Lawsuits have shut some thieving rivals, but that hasn't helped Driscoll's. So many local farmers jumped on the blueberry bandwagon that prices have plummeted from $45 a kilo in 2021 to $15 a kilo this year, leaving Driscoll's berry production in a real, er…jam.

ADVERTISEMENT

Avoid costly scams with Coveron security

Romance scams, sextortion, fake tech support, malware, phishing… criminals use dozens of tactics to steal your identity and money. A single breach exposes your personal data to fraudsters worldwide.

Coveron provides comprehensive identity theft protection that works before damage happens. Our advanced monitoring detects suspicious activity instantly, alerts you with clear guidance, and connects you with dedicated 24/7 case managers.

Whether it's credit card fraud, stolen accounts, or legal recovery support, Coveron has you covered with:

• Up to $1M to cover identity theft recovery costs.

• Up to $10K for losses from online scams.

• Up to $50K to cover eligible costs, including payments made in response to the threats.

Stop reacting to fraud. One scam can cost you everything - protect yourself now. The first 100 users get 20% off with code beehiivenewsletter or by clicking this link.

Secure your identity today

_{30-day money-back guarantee. Terms and conditions apply.}

END OF ADVERTISEMENT

Trumplandia

• Did Donald Trump push Canada too far? Slapping 50% tariffs on Canadian exports and threatening to make the country America’s 51st state may have finally pushed Canada’s government to simply walk away from the U.S. Prime Minister Mark Carney has floated the idea of becoming an associate member of the European Union, joining the 27-country free trade bloc. European Commission President Ursula von der Leyen backed Carney’s move to, as he put it, have “middle powers” join together to counterbalance the global economic sway of China and the U.S. But EU member states are less excited by the idea, with some concerned a Canada-EU partnership would encourage Trump to pull U.S. troops out of Europe. “We love the Canadians but everyone is very realistic about what’s possible and what’s not,” one EU diplomat told the FT. One person who doesn't share that love is Trump. He called Carney’s plan a “hostile act,” and warned he would slap tariffs on the EU if it went ahead.

• Working for the man: Steve Witkoff, the New York real estate developer who’s teamed up with Trump’s son-in-law Jared Kushner to negotiate diplomatic deals and bring peace to the Middle East, has been bringing riches on himself, to an unusual degree for a government employee, the New York Times reports. Witkoff’s sprawling business empire took in $257 million last year, including $107 million  from a stake in the Trump family cryptocurrency businesses. At the same time, he’s been mixing family business with his government role, including holding peace talks with a senior Emirati official who also invested in World Liberty Financial $WLFI ( ▲ 1.9% ) , a company Witkoff and his family own with the Trumps. 

• Special K: That K-shaped economy is getting better for the upper fork, and that includes top-tier women, who earned 84 cents for every dollar a similarly qualified male earned in 2025, up from 81 cents in 2024, according to a new Census Bureau report. Overall, median income rose 2.6% in 2025, to $87,460, but that was fueled by gains among the top 10% of households, while the bottom 10% saw no gains and 44.4 million Americans, 13% of the population, live in poverty.

Want more Cheddar?

You’re clearly into smart people talking about even smarter things. Lucky for you, that's literally our whole deal at Cheddar. We interview the brightest minds in business, finance, and tech. If you'd like more in-depth analysis from interesting people, lcheck out our where to watch page and turn us on 24/7! Your wallet will thank you and so, more importantly, will your mind. But also your wallet. Remember that. 

Peter S. Green is a veteran reporter and editor who has spent more than two decades covering business and finance from Eastern Europe to New York City, and has worked for Bloomberg News, The New York Post, The New York Times and The Messenger. He lives in New York City and is always looking for the next big story. Email him here.