By David Enna, Tipswatch.com
Let’s all admit one thing: 2025 has been a bizarre year for the U.S. economy, inflation, government effectiveness and the certainty of economic statistics. In fact, my code word through the entire year has been “uncertainty,” so much so that some readers complained I use that word too often.
In this year:
- President Trump launched an seemingly dangerous policy of high tariffs on U.S. imports, threatening friends and foes across the world. At first, the market reacted in fear, with the S&P 500 index falling nearly 5% on April 3, the day after “liberation day.”
- But … after a few pauses and restarts, the tariff policies seem to have been accepted by the markets. The S&P 500 has had a total return of 19.2% year-to-date. Euphoria over artificial intelligence has helped overcome the fears.
- The Federal Reserve cut short-term interest rates three times in 2025, with the effective federal funds rate falling from about 4.32% in January to 3.64% this week.
- But … the Fed’s rate cuts have had almost no effect in lowering longer-term interest rates. The yield on a 20-year Treasury bond has fallen just 10 basis points since January 1. The 30-year bond is actually up, now at 4.81% versus 4.79% on January 1.
- Elon Musk breezed into Washington on a mission to cut government spending. He did cut jobs: Government payroll numbers are down about 9% this year.
- But … Despite the cuts, government outlays have increased about 6% in 2025, according to studies by the Cato Institute and Brookings Institution.
- The U.S. government shut down for 43 days because of Congress’s failure to pass budget bills or a continuing resolution. The shutdown (and continuing high deficit spending) has shaken confidence in the value of the U.S. dollar, which has fallen 10% this year.
- But … The shutdown also eliminated or delayed reporting of many crucial economic statistics, including for inflation and jobs. Which means we are now in “a fog” as we head into 2026.
Inflation
In November 2024, annual U.S. inflation stood at 2.7% for all-items and 3.3% for core. Today — if you want to believe the November 2025 inflation report — those numbers stand at 2.7% for all-items and 2.6% for core. That looks like an improvement for core inflation, but the number is skewed by the lack of October housing data.
This one chart — unique in the history of U.S. inflation reporting — says it all:
Inflation could truly be on a declining slope, but because of the lack of data we really can’t be sure. And this problem will most likely continue, and I will again get to use the word “uncertainty.”
Clearly, this is a problem for investors in Treasury Inflation-Protected Securities and Series I Savings Bonds, which have returns tied to official U.S. inflation. As the saying goes, “The devil is in the details.” Right now, we have no details. Good luck finding the devil.
Treasury Inflation-Protected Securities
Real yields for longer-term TIPS have held up quite well throughout 2025, which is good news for people attempting to build a ladder of TIPS issues extending well into the future. You can still find real yields at 2.0% or higher — sometimes much higher — for maturities in 2040 to 2055.
Even the 10-year real yield remains attractive, now sitting at a still-appealing 1.90%, down from 2.23% on January 1.
Here is a look at the 12 TIPS auction through the year:
I have highlighted the highs and lows for the year, which don’t tell you much except that the yield curve has steepened, and that inflation expectations are higher in the short term but lower for the long term. Plus, note the big move higher for the 5-year TIPS after the October government shutdown and the resulting black hole of inflation data. TIPS yields are facing a “confidence tax.”
Compare that chart with the same summary for 2024:
Here is the key difference over the last year: The yield curve has steepened. In early 2024, the highest real yields were for 5-year TIPS. That trend reversed in 2025, mainly due to the Federal Reserve’s actions to lower short-term interest rates. Today, the highest auction yields are for 30-year TIPS, which I would say “is normal.”
Here is the trend line for the main TIPS categories over the last year, showing how the spread has widened for long-term versus shorter-term:
Overall, I’d say TIPS yields remain attractive, and that might be because the market doesn’t trust the inflation data coming now and into the near future. Plus, obviously, federal deficits will continue to rise. So investors are demanding higher real yields.
U.S. Series I Savings Bonds
These inflation-protected savings bonds started the year with a fixed rate of 1.2% and a six-month composite rate of 3.11%. Today, the fixed rate for new purchases has fallen to 0.9%, but the composite rate has increased to 4.03%.
Am I still a fan of I Bonds? Sure. But at this point a 5-year TIPS with a real yield of about 1.44% is definitely a competitive investment. And the 10-year TIPS is even more attractive with a real yield of 1.90%.
The problem for all inflation-adjusted investments is trust in the U.S. statistical reporting system. The government shutdown threw a wrench into the November inflation rate, and that disruption could linger unless the Bureau of Labor Statistics finds a way to make adjustments.
I will be likely to purchase a 2026 allocation of I Bonds, but definitely not before mid-April when I can see where both the variable rate and fixed rates are trending.
In summary
I am getting tons of feedback from readers who no longer trust the system. Deficits are out of control. Official inflation reports are jumbled, which is probably being kind. I have no idea where we are heading. I will admit that. The stock market could soar … or plummet. Inflation could reignite … or move toward deflation. The labor market could remain solid … or jobs will disappear.
Unless we have a deep recession, I can’t see inflation lessening dramatically in 2026. But I know that trying to predict future inflation is impossible. So all I can say is:
Have a wonderful New Year. Let’s stick together and figure this out.
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David Enna is a financial journalist, not a financial adviser. He is not selling or profiting from any investment discussed. I Bonds and TIPS are not “get rich” investments; they are best used for capital preservation and inflation protection. They can be purchased through the Treasury or other providers without fees, commissions or carrying charges. Please do your own research before investing.
