TAG Industrial Watch: September 20, 2025

This past week, the Federal Reserve began its second round of rate cuts by targeting a 25-basis-point reduction on bank-to-bank lending. Just like last year, most financial analysts are assuming that Fed rate cuts will trickle down to U.S. Treasuries and thus residential and commercial mortgages. And just like last year, TAG continues to warn industrial investors to prepare for a repeat of higher rates. However, today’s economy is not the same as last year’s. In 2024, the labor market was still perceived as strong, despite repeated downward revisions to the monthly jobs numbers. This year, the perception of the labor market has changed drastically as bigger downward revisions have resulted in the first month of job losses (outside of government-mandated pandemic lockdowns) since 2010. Last year, the average tariff rate was only 2.5%, but today, prices are adjusting to an average rate of 18.6%. Prior to the Fed cutting rates in 2024, the value of the U.S. dollar against foreign currencies was relatively stable and appreciated sharply with the reelection of Donald Trump. In the first half of 2025, the dollar lost the most value against foreign currencies in over 50 years, putting additional upward pressure on prices. With signs of stagflation glaring throughout the economy, another round of Fed rate cuts may result in even higher interest rates this year than last year. While it is tempting for industrial investors to continue waiting on the sidelines for lower rates, it may be wise to act sooner rather than later.
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