5 Things You Need to Know About the Fed’s Rate Cut
Richard Stern /
The Federal Reserve’s decision to cut interest rates marks a new chapter in the D.C. Cartel’s long march toward the bankruptcy of our nation.
Although the Fed’s move to cut rates and expand the money supply may provide some relief from higher interest rates for consumers and businesses, it does so at the expense of fueling the fires of inflation.
With prices for essentials rising over 20%, this move doesn’t prioritize the interests of the American people. Here are the five key things you need to know about the Fed’s rate cut and what it’ll mean for you and your family.
1. Federal Spending Real Cause of the Problem
The federal government has recklessly expanded in recent years, redirecting more of your hard-earned money into the hands of bureaucrats and their allies. Federal spending either can be paid for through taxes or borrowing.
Tax increases, of course, harm Americans in a direct manner by taking from your paycheck and bank account. Borrowing, on the other hand, creates a more insidious and obscure harm. The federal government can crowd out private investment and eat everyone’s lunch off the money market buffet table.
As federal debt grows, it imposes a burden on every American. The Federal Reserve then faces a choice: Print more money, leading to skyrocketing inflation and price increases, or refrain from printing and impose prohibitively high interest rates on credit cards, prospective homeowners, and small business owners.
Without cutting government spending, any Fed action is merely a form of rearranging deck chairs on the Titanic of debt.
2. The Fed Chooses High Inflation Over High Interest Rates
This dynamic means that the Fed is left with only a Sophie’s choice between high inflation and high consumer and business interest rates. For roughly the past three years, the Fed has tried to restrain the money supply to reduce inflation at the risk of increasing interest rates—and it has.
In that time frame, mortgage rates have gone from around 2.8% to well over 6%—peaking close to 8%. This has meant that a typical mortgage on a median-priced home now will cost a homeowner well over $300,000 in extra interest costs over the lifetime of the mortgage.
With inflation rates now down to around 3%, the Fed has chosen to waffle back to putting pressure on inflation to bring down interest rates. The Fed seems committed to this seesaw between the two as the way to manage the pain from federal deficits.
3. Decision Comes Right After Federal Interest Costs Top $1 Trillion a Year
Of course, the Federal Reserve’s decision comes right after federal spending on annual interest payments broke $1—close to $8,000 per American family per year. When interest rates are high, it isn’t only consumers and businesses that face high rates, it’s also the government.
Reversing the course back to lowering rates at the expense of higher inflation seems rather self-serving for the government when viewed through this lens.
4. This Rate Cut Comes Suspiciously Right Before Election
The Fed’s actions always take time to permeate through the economy. And although tightening conditions can have faster impacts on sending interest rates higher, in monetary loosening it takes more time for inflation to be seen.
This is because markets tend to react quickly to the specter of scarcer money by sending rates higher, but prices rise only as the newly created money fully flows through the economy. As such, the Fed’s decision to cut rates—and increase the money supply—likely will lead to a flurry of activity now, with inflation coming in well afterward.
This is analogous to the hangover coming the morning after a night of drinking. The suspicious thing here is that the hangover almost certainly will happen conveniently after the election.
Inflation is still above the Fed’s traditional 2% target. In fact, it is much closer to 3%, while the median rate of inflation is well above 4%. So, it seems even more arbitrary that the Fed would choose now—a close but strategic distance from Election Day on Nov. 5– to begin a drinking binge.
5. The Problem Only Expected to Get Worse
Disturbingly, the problem is likely to get worse. Modest estimates from the Congressional Budget Office suggest that we can expect to add at least $20 trillion to the national debt—ballooning it to well over $400,000 per American household.
Whiplashing between high inflation and high interest rates will only continue to grow in intensity if the debt continues on this path.
Unless there are serious cuts to planned federal spending and debt accumulation, this burden will continue to grow without end. Whenever the government spends a dollar, it commits to steal that dollar from a hardworking American—either through taxes, or through borrowing and money-printing.
There is only one solution: We must restrain government spending before it further cripples the American dream.