Inflation, Rates and the Fed
What the central bank actually controls, what it does not, and why the rate that matters to your mortgage is set somewhere else entirely.
6 articles · about 54 min in total
Start with What Is Inflation and How It Actually Eats Your MoneyThe Federal Reserve sets one interest rate: the overnight rate banks charge each other. Almost every rate you personally care about is set by the bond market instead, and the gap between those two facts causes most of the confusion in this subject.
That is why the mortgage step is early. A 30-year mortgage is priced off long-dated Treasury yields plus a lender spread, and long yields reflect what the market expects about inflation and growth. A cut can arrive and mortgage rates can rise on the same day, and nothing has gone wrong.
Inflation and bonds come first because they are the machinery. Once you can see why bond prices fall when yields rise, the rest of macro commentary stops being a wall of jargon and starts being a fairly small number of moving parts.
The path ends on live disagreement rather than settled theory. Officials dissenting over whether AI capital spending is inflationary is a genuinely open question, and watching a real argument is a better education than reading a resolved one.
Key takeaways
- The Federal Reserve directly sets only an overnight rate, while mortgage and corporate borrowing costs are set by the bond market.
- Bond prices and yields move in opposite directions, so a rate rise reduces the market value of bonds already held.
- Inflation measures the rate at which a fixed basket of goods gets more expensive, which makes it an average rather than a personal figure.
- The yield curve inverted for 27 months without the usual recession following, which shows it describes lending conditions rather than guaranteeing an outcome.
Step 1: What Is Inflation and How It Actually Eats Your Money
Inflation is the slow decline in what a dollar buys, tracked by the CPI. Here is what causes it, why the Fed targets 2%, and why sitting in cash is a quiet, guaranteed loss.
Jun 7, 2026 · 8 min read
Step 2: What Are Bonds, Really, and How Do They Work
A bond is just a loan you make to a government or company, with the terms written down. Here is how the coupon, face value, and maturity fit together, why bond prices move opposite to interest rates, and what role bonds actually play in a regular investor's portfolio.
May 14, 2026 · 8 min read
Step 3: Why Mortgage Rates Don't Follow the Fed
The Fed sets an overnight rate. Your 30-year mortgage is priced off the 10-year Treasury plus a spread that nobody at the Fed controls. That's why rates have gone UP after cuts, more than once, and why waiting for the Fed is a losing strategy.
Jul 5, 2026 · 11 min read
Step 4: Warsh Said Inflation Risks Eased. Markets Heard a Rate Cut. They Are Not the Same Thing.
Fed Chair Kevin Warsh said inflation risks have come down and markets rallied. But the June dot plot has nine of eighteen officials penciling in a hike, and futures still price one by September. The market is not front-running cuts. It is front-running the absence of a hike, and calling that a pivot.
Jul 4, 2026 · 10 min read
Step 5: Three Fed Officials Just Voted to Raise Rates. The Real Fight Is Whether AI Is Inflationary.
The Fed held at 3.50-3.75% for a fifth straight meeting, but the vote was 9-3 and all three dissents wanted a hike. That is the most dissents since 2016. Underneath it is a question the Fed has openly admitted it cannot answer yet, and it has commissioned task forces to go find out.
Jul 29, 2026 · 8 min read
Step 6: The Yield Curve Inverted for 27 Months and No Recession Came
The indicator with the famous unbroken record just broke it. The 2022 inversion was the longest in the data series and the recession did not arrive on schedule. What is more interesting is that the moment everyone watches, the inversion itself, was never the part that lined up with recessions anyway.
Jul 29, 2026 · 9 min read
Frequently asked questions
- Do mortgage rates follow the Fed?
- No, not reliably. The Fed sets an overnight rate while a 30-year mortgage is priced off long-dated Treasury yields plus a lender spread. Those long yields reflect inflation and growth expectations, so they can rise on the day the Fed cuts.
- Why do bond prices fall when interest rates rise?
- Because a bond pays a fixed coupon. When newly issued bonds pay more, an older lower-paying bond is only attractive at a discount, so its market price falls until its effective yield matches what is newly available.
- What is inflation actually measuring?
- The rate at which the price of a fixed basket of goods and services rises, which is the rate at which each unit of currency buys less. It is an average across the basket, so your personal rate depends entirely on what you actually buy.
- Is AI capital spending inflationary?
- It is genuinely disputed, which is why Fed officials have dissented over it. The case for is that it competes for electricity, construction and skilled labor. The case against is that it raises productive capacity, which is disinflationary once the capacity comes online.