Why can't the Federal Reserve cut interest rates anymore?

It's not inflation.

This is the first sentence we must agree on before continuing the discussion.

Anyone following the markets today thinks that Jerome Powell is holding onto high interest rates because he's fighting inflation.

And the truth is, the real battle is somewhere else entirely,
Far from the CPI numbers everyone watches every month.

The real battle is called: Capital Scarcity.
Let me explain what’s happening behind the scenes.

The first rule you must remember
In the bond market, there is a simple inverse relationship between price and yield.
When demand for bonds increases, their price rises, and their yield falls.

And the exact opposite is true,
When demand weakens or supply increases, the price drops, and the yield rises.

This is a basic rule in any economics book,
But it’s the key to the door we will enter through.

Nominal Yield and Real Yield
Any bond yield consists of two parts.
The first part is the Real Yield,
Which is what the bond pays above inflation.

The second part is inflation expectations themselves (Inflation Expectations).

If you add the two together, you get the Nominal Yield that you see on your screen.

The difference between the nominal yield and the real yield is called the Breakeven Inflation, which simply reflects what the market expects inflation to be over the bond’s lifetime.

Today, that number stands at just 2.3%.
Read it again.

Global markets, with all their trillions, say with one voice that long-term inflation is under control.

We will not see the return of the terrifying 2022 numbers.
Inflation is not the ghost frightening the Fed.
So, what is it that scares them?

TIPS Bonds Tell the True Story
TIPS bonds are U.S. Treasury inflation-protected securities. Their yield moves with prices, giving you exactly the real yield, free from any distortion.

In August 2025, the auction of the 30-year inflation-protected bonds issued a real yield of 2.65%,
The highest yield for this segment since October 2001. An entire quarter-century.

The yield rose because the price fell.
And the price fell because demand weakened.
Here comes the real shock.

The 30-year U.S. Treasury bonds, protected from inflation,
Are almost the safest assets on the face of the planet.

They were supposed to be eagerly bought by giant pension funds, insurance companies, and central banks around the world.

But that didn’t happen.
Why?