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What the Fed Rate Cut Means to You: Part IV

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Chair Jerome H. Powell (left) and Vice Chair Philip N. Jefferson participate in the Federal Open Market Committee (FOMC) meeting at the William McChesney Martin Jr. Building in Washington, D.C., held on January 30-31, 2024. Photo courtesy of the Federal Reserve.

In a recent article in The Wall Street Journal, Sam Goldfarb explains the counterintuitive outcomes that have occurred after the Fed’s rate cut. The crux of all this, I think, is here:

“In fact, the choice might have even helped drive yields higher, according to some investors. In opting for the larger reduction, the Fed signaled that it was willing to fight to keep the economy out of a recession, which would almost certainly lead to even bigger cuts.

At the same time, officials signaled they were optimistic about the economy and most likely will cut rates by only a quarter point at future meetings.”

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Traditionally, a 50 basis point cut has signaled a problem. So, the Fed doing a 50bps cut will alarm, but at the same time, Jerome Powell is attempting to calm the market by telling everyone that it’s all part of the plan. But that doesn’t really align with the Fed’s rate cut history.

Since 1971, there have been 299 rate-changing decisions made by the FOMC, with 132 of them rate cuts. Of those rate cuts, 59 were 50bps or more. Those were all clustered around recessions and big economic shocks. (see the attached chart).

Action Line: The clear answer to the Fed is a gold standard, where they need to follow the rules of the road accordingly and not be treated as rock stars. Click here to subscribe to my free monthly Survive & Thrive letter.

Read the entire series here.

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E.J. Smith - Your Survival Guy

E.J. Smith is Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. His focus at all times is on preparing clients and readers for “Times Like These.” E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH. His first drum set was a 5-piece Slingerland with Zildjians. He grew-up worshiping Neil Peart (RIP) of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West (RIP JB) and Paris. Please get in touch with E.J. at ejsmith@yoursurvivalguy.com To sign up for my free monthly Survive & Thrive letter, click here.

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