Fractured Front

The Federal Reserve’s July meeting concluded with a decision that was both widely expected yet still surprising. As anticipated, the Fed held its benchmark federal funds rate steady in a target range of 4.25%−4.50% for the fifth consecutive meeting. The real story, however, was in the vote count. For the first time since 1993, two of the Fed’s governors cast dissenting votes, arguing instead for a 25-basis-point cut.

Number of FOMC Governor Dissents

The dissenters were motivated in part by the fear that the labor market is cooling more rapidly than the headline figures like jobs added suggest. Governor Christopher Waller — who is seen as a candidate to replace Chair Jerome Powell — has been particularly vocal, warning that private-sector job growth is “near stall speed” and that they “should not wait until the labor market deteriorates before we cut the policy rate”.

For those who voted to keep interest rates steady, the primary motivation is wanting more clarity on how tariffs will affect the economy. However, comments from Powell during the post-meeting presser suggest that clarity could take a while:

“But at the same time, there are many, many uncertainties left to resolve,” he said. “So yes, we are learning more and more. It doesn’t feel like we’re very close to the end of that process. And that’s not for us to judge, but it feels like there’s much more to come.”

An Economy of Two Tales

The divisions within the Fed are a direct reflection of mixed economic data that can be interpreted in different ways.

On the surface, the latest report on Gross Domestic Product (GDP) painted a picture of robust health. The U.S. economy grew at a 3.0% annualized rate in the second quarter, above consensus expectations for growth of 2.4% and a welcome rebound from the 0.5% contraction in the first quarter.

Beneath the surface, however, the picture gets more complicated. The GDP figure was artificially boosted by a massive 30.1% plunge in imports, which raised GDP by 5.7 percentage points (because net exports increased). In other words, the robust GDP print was less a sign of domestic strength and more a normalization after businesses frantically imported and stockpiled goods to get ahead of tariffs in the prior quarter.

To get a more accurate gauge of underlying economic momentum, one can look at Final Sales to Private Domestic Purchasers (i.e. private domestic demand) which strips out government spending, trade, and inventories to isolate what consumers and businesses are doing. This measure tells a more sobering story: Entering the year at 2.9%, private domestic demand slowed to 1.2% in Q2 and is expected to slow even further next quarter.

Real Private Domestic Demand

There’s something to the idea that the economy is showing some cracks, but it remains to be seen how much more economic pain the Fed would be willing to tolerate to get the inflation clarity it’s looking for.

Investors Remain Optimistic, For Now

Despite everything, the U.S. stock market has remained remarkably buoyant. The S&P 500 has spent the month marching to a series of new all-time highs, powered by better-than-expected earnings results and relief that worst-case tariff scenarios were avoided.

While the stock market reaction to the Fed’s decision was muted — stocks finished the day mostly flat — the more telling reaction was from the bond market. The 2-year Treasury yield, sensitive to what the Fed does, ticked up by about seven basis points to end the day at 3.94%. Given Powell’s hesitance to hint at, much less endorse, a September rate cut, the move higher in Treasury yields isn’t a surprise.

The age-old mantra for investors has been don’t fight the Fed. Yet in many ways that’s exactly what investors have been doing. Coming into Fed day, futures pricing indicated about a 65% chance of a rate cut at the September meeting. After the release of the Fed statement and post-meeting press conference, that has fallen to 47%.

Probability of a September Rate Cut

In essence, investors have been siding with the dissenters, betting that weakening economic growth and no persistent tariff-related inflation will push the Fed to cut rates, regardless of its current rhetoric. This sets the stage for a data-dependent showdown over the next two months. If the next inflation reports show increasing tariff impacts, or labor data remains solid (we get a big update on Friday with the monthly jobs report!), it could force a rapid repricing of rate cut expectations beyond what we’ve already seen.

Want more insights from SoFi’s Investment Strategy team? The Important Part: Investing With Liz Thomas, a podcast from SoFi, takes listeners through today’s top-of-mind themes in investing and breaks them down into digestible and actionable pieces.

SoFi can’t guarantee future financial performance, and past performance is no indication of future success. This information isn’t financial advice. Investment decisions should be based on specific financial needs, goals and risk appetite.

Communication of SoFi Wealth LLC an SEC Registered Investment Adviser. Information about SoFi Wealth’s advisory operations, services, and fees is set forth in SoFi Wealth’s current Form ADV Part 2 (Brochure), a copy of which is available upon request and at www.adviserinfo.sec.gov. Mario Ismailanji is a Registered Representative of SoFi Securities and Investment Advisor Representative of SoFi Wealth. Form ADV 2A is available at www.sofi.com/legal/adv.

It’s a tricky time to introduce tax-free tips.

Although a new tax deduction should be welcome news for many waiters, bartenders, and other workers who typically rely on income from tips, there could be unintended negative consequences for both the tippee and the tipper.

For one, it could turbocharge a tipping culture many Americans already feel is out of control. Over the last few years, touchscreen tipping prompts have become ubiquitous when checking out at takeout joints, delis, and coffee houses. Even some pet and thrift stores have them.

The new tax policy “could ignite a whole new level of tipping resentment,” Michelle Singletary, the personal finance columnist at The Washington Post, wrote in a recent column.

Consumers are likely to feel even more pressure and could become more judgmental of the work provided by tipped workers, according to Singletary. At the same time, there will be less incentive for employers to pay a living wage, she wrote.

A quick recap of the new provision, which was approved as part of the One Big Beautiful Bill Act: Between 2025 and 2028, federal taxpayers with occupations that “customarily and regularly” receive tips can deduct up to $25,000 a year in qualifying tips. (The IRS will post a list of eligible occupations by October.) The tax break phases out for workers who earn over $150,000 in adjusted gross income, and the income is still subject to Social Security and Medicare taxes.

To be sure, it’s hard to say how much the new rules will actually affect tipping behavior. According to a report last year from The Budget Lab at Yale, only 4% of families report tips to the IRS, and many of those who do may not earn enough to pay income tax in the first place.

So what? Tipping is an emotionally charged issue. Few, if any, want to stiff a hardworking low-wage waiter or barista, but the number of tipping requests can be overwhelming. If tips are taking a toll on you — financially or otherwise — consider these options:

•  Pay in cash. Those automatic 15%, 20%, 25% tipping prompts pop up when you use a credit card or payment app. There’s a lot less pressure when you pull out cash.

•  Create a tipping budget/plan. It’s exhausting thinking about tips, especially if you have to ask yourself what’s fair every time you make a purchase. Consider creating your own tipping rules ahead of time. Have a standard percentage for each type of business you frequent. (You can always raise it when you get great service.)

•  When you can, DIY. There’s no need to tip when you’re eating at home, trimming your own kid’s hair, or washing your own car. Doing it yourself can help you limit how often you’re presented with a tipping option.

•  Look for other ways to save. Depending on where you live, businesses may pay tipped workers less than the standard minimum wage. If that motivates you to tip, find other places in your budget to cut back instead.

Related Reading

‘No Tax on Tips’ Will Harm More Workers Than It Helps (Economic Policy Institute)

The Craziest Places I’ve Been Asked To Tip (Bankrate)

Small Businesses Leverage Tipping to Control Labor Costs Amid Tipping Fatigue (Gusto)

Please understand that this information provided is general in nature and shouldn’t be construed as a recommendation or solicitation of any products offered by SoFi’s affiliates and subsidiaries. In addition, this information is by no means meant to provide investment or financial advice, nor is it intended to serve as the basis for any investment decision or recommendation to buy or sell any asset. Keep in mind that investing involves risk, and past performance of an asset never guarantees future results or returns. It’s important for investors to consider their specific financial needs, goals, and risk profile before making an investment decision.

The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. These links are provided for informational purposes and should not be viewed as an endorsement. No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this content.

SoFi isn't recommending and is not affiliated with the brands or companies displayed. Brands displayed neither endorse or sponsor this article. Third party trademarks and service marks referenced are property of their respective owners.

OTM20250730SW

Here’s the funny thing about interest rates: They affect how much you pay to borrow money, but also how much you can earn by saving money. So if you don’t need a loan, higher rates can actually be a good thing in many ways.

And that’s the situation we’re in right now. The Federal Reserve’s benchmark interest rate is high — higher than it’s been for most of the last two decades, with the exception of the past two years. Despite calls from the president to lower it, Fed officials aren’t expected to change it at their meeting today, and it’s unclear when they will.

A quick recap of how we got here: The Fed cut its rate — known as the fed funds rate — to virtually zero when the pandemic struck in 2020. Two years later, the central bank reversed course, cranking it up to a 22-year high in an effort to quash a major spike in inflation.

Last year, after inflation cooled, Fed officials backed off a bit, but have been wary of lowering the rate too much. New tariffs on imports have muddied the outlook on inflation, creating a lot of uncertainty about what will happen to prices from here.

Back to how this all affects you. Even though the fed funds rate doesn’t apply directly to consumer products, banks use it as the basis for setting both the rates they offer on savings accounts and the rates they charge on loans. (And yes, they are connected. Because banks use deposits to lend money, the more they charge borrowers, the more they can pay savers.)

So a higher fed funds rate means that borrowing in general will continue to be relatively expensive compared to a few years ago — bad news if you carry a credit card balance or are hoping to buy something big, like a house, this year. (There are other factors with mortgage rates, but the same fundamentals apply.)

Your savings, however, can benefit from these higher rates. Today’s highest-paying savings accounts feature a significantly higher APY than a few years ago, according to Investopedia. (SoFi’s high-yield savings account has an APY of up to 3.80%.)

The bottom line? It’s unclear when interest rates may come down — or by how much. And that’s not necessarily a bad thing, given how many Americans are prioritizing saving over spending these days. If you have money socked away, take advantage. There’s still time to give your money a boost with a high-yield savings or money market account.

SoFi members who enroll in SoFi Plus with Eligible Direct Deposit or by paying the SoFi Plus Subscription Fee every 30 days or SoFi members with $5,000 or more in Qualifying Deposits during the 30-Day Evaluation Period can earn 3.80% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. Members without either SoFi Plus or Qualifying Deposits, during the 30-Day Evaluation Period will earn 1.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Interest rates are variable and subject to change at any time. These rates are current as of 1/24/25. There is no minimum balance requirement. If you have satisfied Eligible Direct Deposit requirements for our highest APY but do not see 3.80% APY on your APY Details page the day after your Eligible Direct Deposit arrives, please contact us at 855-456-7634. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet. See the SoFi Plus Terms and Conditions at https://www.sofi.com/terms-of-use/#plus.

Please understand that this information provided is general in nature and shouldn’t be construed as a recommendation or solicitation of any products offered by SoFi’s affiliates and subsidiaries. In addition, this information is by no means meant to provide investment or financial advice, nor is it intended to serve as the basis for any investment decision or recommendation to buy or sell any asset. Keep in mind that investing involves risk, and past performance of an asset never guarantees future results or returns. It’s important for investors to consider their specific financial needs, goals, and risk profile before making an investment decision.

The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. These links are provided for informational purposes and should not be viewed as an endorsement. No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this content.

SoFi isn't recommending and is not affiliated with the brands or companies displayed. Brands displayed neither endorse or sponsor this article. Third party trademarks and service marks referenced are property of their respective owners.

OTM2025073001