Most Americans pay close attention to interest rates when buying a home or car, or making any major purchase. Rates matter because higher interest rates translate into higher monthly payments. However, what affects households even more is the overall inflation rate, which determines the everyday cost of all goods and services. This week, the Federal Reserve issued its third interest-rate cut of 2025, lowering the federal funds rate by 0.25 percentage points and bringing the target range to 3.50% – 3.75%. The Fed’s median projection shows only one more cut in 2026, which would move rates closer to the neutral level of about 3.0%. Lower rates help with big-ticket items, but they also stimulate spending — and that can, unfortunately, contribute to inflation. Typically, I would wait to see how these cuts flow through the economy. However, we have additional inflationary pressures from fiscal policy and other factors. This year’s extended and expanded tax cuts act as stimulus, and analyses consistently show the benefits accrue mostly to the top 10% of earners. Since this group already drives about 50% of all U.S. consumer spending, their increased purchasing power will likely support businesses serving higher-income households. That’s great for businesses that cater to this group, but this increased spending also typically fuels inflation. And inflation remains Americans’ top concern. A recent Fox News poll showed the Trump administration’s approval rating falling to 41%, its lowest point since the inauguration in January. It found 76% of voters view the national economy negatively, citing rising costs for groceries, utilities, healthcare and housing. Businesses are signaling the same pressures. A Bank of America study found that two-thirds of small and mid-size businesses plan to pass on price increases because their margins have become too thin. This aligns with the recent National Federation of Independent Business (NFIB) small business survey, where a net 34% of owners reported raising their average selling prices — a 13-point jump and the largest monthly increase in the survey’s history. Another 30% expect further price hikes in the next three months. I hope that rate cuts provide relief without worsening inflation. But given the existing pressures on households and businesses, the risk of further price increases is very real — and I’ll be watching closely. Tatiana Bailey is executive director of the nonprofit Data-Driven Economic Strategies. Other Gazette articles, TV segments, DDES monthly economic dashboards with technical explanations, and how to sponsor their work can be found at ddestrategies.org. ...read more read less