Don’t fight the Fed!
—Modern proverb
You already know this.
Nine months can feel like an eternity.
It can feel like forever.
This is especially true when you’re waiting for an interest-rate cut to happen, but it keeps getting delayed. Again and again.
The wait can be painful, particularly in this age of 24/7 streaming media. We want instant gratification. We want immediate results. And let’s face it: we just aren’t as patient as our grandparents used to be.
But fear not. The waiting game is over. After a long pause, the US Federal Reserve has finally — finally — resumed its rate-cutting cycle.
Yes, it’s taken us a while to get here, but at long last, it’s happening.
Source: Charlie Bilello
On September 17, Fed Chairman Jerome Powell announced a reduction of 25 basis points. This brought the federal funds rate down to a range of 4% to 4.25%.
- Powell called it a ‘risk-management cut’. He signalled that he was considering more reductions, which the Fed would roll out in a careful and deliberate fashion.
- Of course, the market welcomed the news — and investors immediately began pricing in future possibilities.
So right now, as you read this, the Fed is holding another policy meeting. This will conclude soon with a press conference.
- Powell is widely expected to announce another 25 basis-point cut.
- So far, so good. The schedule has been mapped out.
However, it’s worth noting that the timing of these cuts has created some minor controversy. Here’s a dissenting view from Bob Savage, an analyst from the Bank of New York Mellon:
‘When you have GDP at 3.8% in the second quarter, and jobless claims below 250,000, it’s really hard to believe the Fed is going to deliver more than three or four cuts, and that changes the arithmetic for holding value.’
What does this mean?
- Well, quite simply, the American economy is still displaying surprising strength, defying the pessimists.
- The traders at Polymarket are estimating the chances of a recession in 2025 at only 6%.
- Therefore, some commentators think that this removes the need to cut rates too soon.
However, Stephen Miran, a governor at the Fed, disagrees. He says that the jobs market is vulnerable, so aggressive rate cuts are definitely needed. He explains:
‘The upshot is that monetary policy is well into restrictive territory. Leaving short-term interest rates roughly 2 percentage points too tight risks unnecessary layoffs and higher unemployment.’
This means that Miran believes it’s actually better to cut quickly.
- In fact, he has expressed his desire to go beyond the usual 25 basis-point cut. He’s actually wanting a 50 basis-point cut to be delivered ASAP.
- In his opinion, this jumbo-sized reduction would be the best way to safeguard jobs.
- So will Miran get his wish? Well, only time will tell.
Source: Brew Markets / X
Still, if you look beyond the noise, it’s possible that a Goldilocks scenario might be emerging for the American economy. Not too hot. Not too cold. Just right.
- The gradual transition from monetary tightening to monetary easing could be an important one. At the moment, in the United States alone, there’s over $7 trillion of cash sitting in money-market funds.
- That’s a staggering pile of money, isn’t it? Well, up until now, they’ve been earning attractive yields. But as rates fall, those yields shrink. This might just push savers to redeploy their cash into more productive assets.
- Why? Simple psychology and math. When money-market returns dip below 4%, the opportunity cost of sitting still rises. Investors will start hunting for growth, fuelling market movements.
I’ve looked at evidence that suggests that this is already happening. For the week ending October 15, total money-market fund assets reportedly shrank by $17.75 billion.
- Indeed, it’s striking that both retail funds and institutional funds have experienced significant outflows here. This means that regular folks and rich-listers alike are starting to move.
- Just imagine: nest eggs, dormant in safety, are suddenly being cracked open. They’re awakening to chase better returns.
Now, historically speaking, cycles of monetary easing have the potential to spark epic rallies. However, as contrarian investors know, the real magic actually happens in areas of the market that the mainstream media has actually ignored.
- These are opportunities beyond the radar, where value meets momentum.
- So, in the name of being rebellious, I want to explore 2 Hidden Areas that could be poised to benefit as interest rates fall.
- Let’s dive straight in, armed with a healthy dose of defiance…
Your first Quantum Wealth Report is waiting for you:
