Welp… It Happened — And Interest Rates Skyrocketed As A Result! Can’t Say I Didn’t Warn Everyone
On April 21st, I wrote this super famous blog that was read by millions…or maybe thousands; okay, maybe hundreds; all right, dozens at least:
(My blog actually has over 10,000 daily readers now across our various platforms, but that doesn’t stop me from kidding; I miss the days still when my readership dropped by 50% whenever my mom was too busy to read it.)
And sure enough, that “very good news” surfaced over the weekend, and rates immediately started to climb and are still climbing as I type. That good news, of course, is the trade deal announced by China and the U.S.
It is a huge development because China represents such a large and necessary part of U.S. trade.
I say “necessary” because China doesn’t just supply finished goods that the U.S. relies on, but it also supplies enormous quantities of necessary inputs (machine parts, circuit boards, rare earths, batteries, etc.).
China is a significant part of numerous supply chains that were totally disrupted when tariffs were jacked up to 145% — so the U.S. was facing supply chain issues much like what we saw during COVID.
Sidebar: As important as China is, most people don’t realize that China is America’s third-largest trading partner, behind Mexico (#1) and Canada (#2).
In any case, the restoration of trade, although still constrained, is viewed as very positive economic news. And, as I often remind readers, bond investors focus primarily on two key factors: 1) inflation expectations; and 2) economic growth expectations.
Bond investors demand higher yields (pushing rates up) if they expect inflation to remain hot or if they expect the economy to grow faster.
Will Rates Remain High Now?
The folks at are predicting an additional bump in rates tomorrow in response to an inflation report that they think will come in hotter than expected.
But, after that, rates will likely start to trickle back down for many reasons.
For starters, the U.S./China trade deal is only a “temporary agreement” for 90 days, and 30% tariffs remain in place (which still represent a significant constraint on trade).
In addition, all of the other economic weaknesses I have been blogging about remain, including: cracks in the labor market, falling consumer sentiment, weak manufacturing numbers, maxed out credit cards, falling savings numbers, falling M2 money supply, reduced government stimulus, and the messes already created by tariffs that will take months to clean up.
And finally, our government desperately needs and wants lower rates for many reasons and may do whatever is necessary to get them.
Joe Brown explains why and how in this excellent video (in which he also explains why tariffs are NOT inflationary):
TLDR: I still expect much lower rates by Q4.
Originally published at on May 12, 2025.
