With the Fed Holding, the Dollar and Unemployment Tell the Real Story

John Lekas – CEO & Senior Portfolio Manager, Leader Capital

August 5th, 2025

As expected by the team at Leader Capital, last week’s jobs report showed that the unemployment rate stayed put at 4.2%. Moreover, the Fed decided to hold rates steady. However, in our opinion, Powell’s decision not to cut does not paint a full picture of where the economy is heading or where it currently stands. There is a greater narrative at play and two key factors that investors need to take into account.

At Leader, these factors remain the U.S. dollar and the U-3 unemployment. As we have asserted before, the current administration may be intentionally pursuing a low-dollar policy, and saber-rattling surrounding tariffs is just that – saber-rattling.

In his press conference on July 30, Fed chair Jerome Powell agreed with us, saying that the real number to watch would be the unemployment rate.

With that accounted for, we can move our focus to what Leader Capital views as the second, and perhaps most important, indicator of where the economy is heading, the declining dollar, which we believe may be the most important macro signal for H2 2025.

Based on current trends, our team expects the dollar to drop even lower. In fact, if it drops another 10%, Jerome Powell and the Fed may even be in a position to raise rates at their next meeting.

This dollar devaluation is an inflationary tactic, and that which is inflationary will always move prices up. As the dollar continues to go down, equity markets will go higher, right alongside interest rates.

For those who are worried, don’t be. While risks remain, current indicators suggest resilience in equity markets. Credit spreads remain extremely tight. They’re 150 on the investment grade side and 350 on the high yield. That’s very doable. Mortgage rates are around 6.5%. Sure, the housing market will get a little soft, but it has been.

In conclusion, given current credit spreads, unemployment, and dollar trends, we believe the economy shows signs of stability.

This communication reflects the views of Leader Capital as of the date indicated and is subject to change. It is not intended as investment advice or a guarantee of future performance. Past performance is not indicative of future results.

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