Fed Cuts Rates, But At a Cost

The Federal Reserve announced rate cuts on Wednesday, but highlighted a worrying trend which set investors on panic mode during trading hours.

The Fed, previously promising further rate cuts to restore a friendly business environment, cut rates by an additional 0.25% in a surprisingly close vote. Many expected the Fed to unanimously support cutting rates further, but instead a small rate cut just narrowly flew by; but why?

The Fed has highlighted concern over the next year or so. Recent CPI reports and other inflation reports signaled rising inflation despite what many predicted (most said inflation would continue to cool). Perhaps the economy is not yet ready for drastic rate cuts, or perhaps the Fed's landmark 0.5% cut in September allowed for inflation to trickle in for the first time in several months.

Most importantly, the Fed expressed anxieties that over the next year, it may not get many cuts done. In fact, their anticipated number of cuts fell from four to two, according to numerous sources.

This set stocks plummeting Wednesday afternoon. All across the board, once enthusiastic and confident investors started selling in droves after hearing about the Fed's opinions on the state of the economy.

We may not yet see pre-2021 interest rates until a few years even, quite possibly not even until after the Trump presidency. The next two rate cuts, if they even actually occur, will most likely only include 0.25% cuts, meaning that rates will remain very high for a long period of time. Even worse, if inflation starts to rise significantly, rates will need to come up to prevent borrowing power, putting even more stress into the economy.

The next few years, as of now, look bleak after the Fed decision, but this does not mean that the economy will not recover. In fact, recovery is still on the table; perhaps our short term inflation is just caused by temporary circumstances? Investors continue to weigh in.