- The Federal Reserve issued its third and final rate cut for 2024
- Lingering inflation, dropping stock markets, and high interest rates are increasing investor uncertainty
- Gold and silver held in a Gold IRA offer long term protection from the Fed’s monetary policy
Fed’s Final Cut
In its third and final rate cut of 2024, the Federal Reserve reduced interest rates by 0.25 percentage points. This marks the conclusion of an aggressive cycle of rate hikes aimed at curbing record-high inflation. However, despite this move to stimulate the economy, stock markets responded negatively, continuing a 10-day losing streak— the longest since the 1970s.
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Stock Market Reaction
Stocks had been hitting record highs earlier in the year. But the recent rate cut did little to stop its current slide. The Dow Jones Industrial Average had its biggest drop since August and its longest losing streak since 1974. Similarly, the S&P 500 and the Nasdaq have also fallen, with losses intensifying as the day progressed.
Traders had hoped the Fed would continue aggressive rate cuts in 2025. But the expectation of more rate reductions was quickly dampened by the Fed’s cautious outlook.
Bond Yields and Inflation Concerns
After the cut, Treasury yields rose, signaling market expectations of higher inflation. Rising bond yields typically make bonds more attractive to investors compared to stocks. A shift from stocks to bonds can lower stock market performance. And fuel the ongoing market decline.
Future Cuts Uncertain
The Federal Reserve signaled they are almost done with rate cuts. They’re forecasting just two cuts in 2025, down from four. Their goal is to balance low inflation without sending the economy into a recession. Their projection suggests interest rates could drop to 3.4% by 2026, eventually reaching 3%. However, these forecasts might as well be guesses as fresh data brings new predictions. “As we think about further cuts, we’re going to be looking for progress on inflation,” Powell said. He noted that inflation has remained relatively flat over the past 12 months.2
Unemployment and Inflation Projections
Earlier this year, the U.S. was grappling with rising unemployment and falling inflation. Now, however, things seem to have flipped. Inflation has started to rise again, and unemployment is expected to decrease. The Fed has raised its inflation projections for the end of 2025 from 2.1% to 2.5%. Powell has made it clear that while inflation has slowed, prices are still rising. He said the Fed can only slow the rise of prices. Only a recession would actually lower them.3
Rate Cuts in Trump’s Economy
President Trump has promised more growth through tax cuts, deregulation, and tariffs. Such growth would likely cause more inflationary pressures. This puts the Fed in a delicate position. They may need to raise rates again to control inflation. Only to lower them again to avoid a recession.
This lack of a long-term, disciplined policy approach contributes to economic uncertainty. And heightens the risk of stagflation— a situation where inflation rises while economic growth slows.
The Fed’s Neutral Rate Goal
Powell’s pursuit of a “neutral rate” exposes a lack of clear direction. A “neutral rate” is one that neither stimulates nor hurts economic growth. “We’re pretty sure it’s below where we are now,” Powell said. “But as we move further, there will be more uncertainty about where that is.”4
Conclusion
Inflation is still lingering, and interest rates are at their peak for now. Americans can expect little to no relief from high borrowing costs. Mortgage rates and credit card interest rates are unlikely to decrease significantly in the immediate future. And as the Trump economy takes hold, inflation could rise again, causing further strain on household budgets.
In times of economic uncertainty, one way to protect your wealth is through physical precious metals, such as gold. Gold has historically served as a hedge against inflation and market volatility. While the stock market may continue to struggle under the pressure of high interest rates and rising inflation, physical gold offers long-term protection for your retirement funds, especially in a Gold IRA. To learn more about how gold can help safeguard your nest egg in these uncertain times, call us today at 800-462-0071.
