💰 5 Fact Friday: The Fed Just Cut Rates—Now What?

ECONOMY
1. Fed Cuts Rates By 0.5% ✂️

It’s been over 2.5 years since the Fed kicked off the most aggressive rate hike cycle in its history, and we’re finally seeing a pivot.

On Wednesday, the Fed launched a new rate-cutting cycle, trimming 50 basis points off the Fed Funds rate, bringing the target range down to 4.75%–5.00%.

The decision to cut by 0.5% (instead of the typical 0.25%) wasn’t taken lightly. In fact, it marked the first non-unanimous vote by Fed officials since 2005.

So, why the cut?

The central bank’s job is to balance inflation and employment. High rates cool inflation by making borrowing more expensive, but they also dampen job growth. Lower rates, on the other hand, boost job creation but risk reigniting inflation.

With inflation now down to 2.5% (from its 9% peak in 2022) and job openings at a 3.5-year low, the Fed’s attention has shifted to the labor market. In other words, they’re more worried about unemployment than inflation.

But the job’s not done.

Even after this 0.5% cut, rates are still considered “restrictive.” The Fed wants to lower rates to a “neutral” level, but pinpointing that sweet spot? Not so easy.

Estimates from the Atlanta Fed suggest a neutral rate could be anywhere from 3.5% to 4.8%, but that estimate will evolve as the economy shifts.

Looking ahead, the Fed’s "dot plot" points to rates around 4.4% by the end of 2024—hinting at two more 0.25% cuts this year. After that, rates are expected to drop to 3.4% in 2025 and 2.9% in 2026.

Meanwhile, core inflation is projected to hit 2.3% by 2025 and finally settle at the Fed’s target of 2% by 2026.

While Fed Chair Jerome Powell may sound upbeat, he’s still predicting unemployment will climb to 4.4% by year’s end—up from the current 4.2%.

After all, economist Milton Friedman famously said, changes in Fed policy are like “a water tap that you turn on now and that then only starts to run six, nine, 12, 16 months from now.”

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MARKETS
2. How To Play The Fed-Fueled Rally 🚀

At first, the market wasn’t sure how to react. But before long, investors welcomed the Fed’s bold rate cut with open arms—and a full-blown rally.

By Thursday, the Dow Jones smashed through 42,000, setting a new record, while the S&P 500 added nearly $1 trillion in market cap. Tech stocks led the charge, with Bitcoin also surging 5% as speculative assets caught the rate-cut fever.

So what can we expect moving forward? How do rate cuts change the game?

Here’s what lower rates mean:

• CDs and high-yield savings accounts will be less lucrative: Say goodbye to those juicy 5.5% interest rates we’ve enjoyed recently.

• Floating rate debt will get cheaper: Borrowers rejoice! If you’ve got variable-rate loans, you’ll see some relief.

• Housing market may come alive: With lower mortgage rates, homeowners might finally feel comfortable listing their properties.

• Home equity becomes cheaper to tap: Expect more homeowners to access their home equity for greater financial flexibility.

• USD may weaken: With a weaker dollar, exports will become more competitive and imports will get pricier.

• Consumer spending should get a boost: Cheaper borrowing means people will have more disposable income to spend.

How Should We Position Ourselves?

Over the last two years, consumers have poured over $1 trillion into money market funds. But now, with rates heading lower, that money will likely start flowing into riskier assets.

What’s next?

If you want to stay ahead of the curve, here’s where you might want to put your money:

• Safe: Bonds. If you’re looking for stability, consider investment-grade bonds. Lock in those long-term yields now. As demand for bonds rises, there’s also potential for some capital appreciation.

• Moderate: Stocks. An index fund is always a solid play, or if you want to get more targeted, think about sectors that benefit from consumer spending—like consumer discretionary and industrials. These "cyclicals" tend to thrive when borrowing gets cheaper and economic activity ramps up.

• Risky: Bitcoin. With cheaper money comes more borrowing. As the money supply increases, some of that cash will inevitably flow into $BTC. What makes Bitcoin unique is its fixed supply—so as demand rises, the price should go with it.

As rates drop, the ripple effects are starting to show. Whether you’re sticking to bonds or eyeing Bitcoin, the key is positioning yourself for this new regime.

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COMMODITIES
3. Precious Metals Keep Climbing 🏅

Metals have been making major moves, spurred by shifting demand and the Fed's recent rate cuts. Here’s your quick check-in on gold, silver, and copper—and why they’re worth watching.

Gold
Gold recently hit a record high of $2,616/oz, up 26% year-to-date. As the ultimate safe haven and hedge against a weakening U.S. dollar, gold thrives on geopolitical uncertainty and market volatility.

With rate cuts expected to weaken the dollar further, more investors are flocking to gold. The question is: how high can it go?

Silver
Silver is stealing the show, rising 30% this year to $31.08/oz. Interestingly, the gold-silver ratio is still at 84x—well above the 70x historical average—signaling even more potential upside for silver.

But it’s not just precious metal hype.

Silver, the single most electrically conductive metal, sees 60% of its demand driven by industrial use. It’s essential in powering everything from solar panels to electric vehicles.

However, supply is stagnant. Mining output has increased by just 1% over the past decade, setting the stage for a potential supply squeeze.

Copper
Copper has also seen a strong year, gaining 12% and trading at $4.35/lb. Like silver, copper is critical for green energy and tech. In fact, data centers are expected to account for up to 7% of copper demand by 2050 (from under 1% today).

The problem? Supply can’t keep pace. By 2030, copper mines will only meet 80% of global demand, leading analysts to predict a 27% price jump by 2026.

While commodities tend to underperform stocks over the long term, the current setup has promise. With ongoing geopolitical tensions and a continued push toward green energy, these metals may be poised for further gains.

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REAL ESTATE
4. Cautious Optimism From Homebuilders 🏡

The housing market has been frozen in place, but for the first time in four months, the National Association of Home Builders (NAHB) confidence index is on the rise.

Despite home purchasing plans hitting a 12-year low, homebuilders see the light at the end of the tunnel.

Why the optimism? Falling mortgage rates.

The average 30-year mortgage rate has dropped from its October 2023 peak of 7.8% to around 6.1%—a two-year low.

Builders are betting that lower rates will entice homebuyers back into the market. Single-family housing starts have already ticked up in August for the first time in five months.

But don’t expect affordability to bounce back just yet.

Even with borrowing costs easing, many homeowners are opting to stay put and renovate rather than sell. This “lock-in” effect has kept housing supply limited—especially among the 30% of homeowners with a sub-4% mortgage.

While lower rates might coax more sellers into the market, the U.S. still faces a 2.3 million home deficit. Add in pent-up demand, and rising prices seem inevitable.

Goldman Sachs expects home prices to climb, even as rates fall, forecasting slow but steady gains in the coming years. It’s not great news for first-time buyers, but it’s a glimmer of hope for a market that’s been stagnant.

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STOCKS
5. Guess Today’s Mystery Stock 🕵️‍♂️

Ready to test your stock smarts? Here are 5 clues about a company that’s been making waves for all the wrong reasons.

1. This company went public in 2021 via a SPAC, but its stock has since plummeted by over 95%. Once valued at $3.5 billion, the market cap now hovers below $200 million.

2. The co-founder and CEO, who’s been leading the company since 2006, is now trying to take it private again. In protest, all seven of its independent directors resigned.

3. Last quarter, the company reported a $70M loss on $40M in revenue (a 34% drop year-over-year). With only $170M left in cash, it’ll likely need to raise more funds by early 2025—either diluting shareholders or putting more pressure on its finances.

4. Despite all this, the company remains well-known for its at-home DNA testing kits, helping customers trace their genetic ancestry.

5. The company recently expanded its services to include telehealth, offering prescriptions for weight-loss drugs like Ozempic and Wegovy through its subsidiary.

Got a guess? Tap here to reveal the answer → 

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