Federal Reserve Interest Rate Cuts: Economic Implications Explained

The Federal Reserve's recent interest rate cut signals a shift in economic dynamics, impacting inflation and housing markets.

### Federal Reserve Cuts Interest Rates: Implications for Markets and You
* 📉 The Federal Reserve has cut interest rates by 25 basis points, marking the **end of the most restrictive tightening cycle in history**, which could significantly impact the **stock market, housing market, national debt, and the value of the US dollar**.
* 💰 Current inflation stands at **2.4%**, a notable decrease from the **9% rate in 2022**, but prices remain higher than in previous years, leading to a **12-year high in debt delinquency**.
* 🏠 Despite falling interest rates, existing home sales are on track for their **worst year since 1995**, as mortgage rates remain high due to **inflation concerns and market dynamics**.
* 📈 The stock market has experienced a remarkable rise, with the S&P 500 **doubling over five years**, but analysts predict lower returns in the next decade, estimating **annual returns between 3% and 7%**.
* 🏦 The housing market is expected to see only a **2% increase in home sales** in 2024, with rising inventory and affordability issues contributing to the slowdown.
* 💼 The Federal Reserve aims to maintain **price stability and maximum employment**, but recent job reports indicate a **downward trend**, which may lead to **further rate cuts** in the future.
* 🗳 Historical data shows that stock market performance is not significantly influenced by the political party of the president, emphasizing the **importance of focusing on personal finance strategies** instead.
* 🔍 As the economic landscape shifts, individuals should prioritize **managing expenses, saving, and consistent investing** to navigate potential market volatility effectively.

What's up, you guys? It's Graham here, and you better be ready for what just happened. After record-high stock prices, a slowing housing market, and a brand new presidential election, as of a few hours ago, the Federal Reserve made their decision again to cut interest rates another 25 basis points, officially marking the end of the most restrictive tightening cycle we've ever seen in history. That's right, for the first time since 2020, interest rates are beginning to come back down, and that's going to have some pretty serious implications throughout almost everything, from the stock market to the housing market, the national debt, and even the value of the US dollar. So, given the recent update and their brand new decision as of today, let's discuss exactly what happened, what the Federal Reserve just said, the impact this is about to have on everything money, and then most importantly, what this means for you watching because there's a lot going on that most people aren't talking about. Although, really quick, if you appreciate me doing my best to get this video out within a few hours,

of their decision. It would mean a lot to me if you hit the like button or subscribed if you haven't done that already. It's totally free. It takes you a split second, and as a thank you for doing that, here's a picture of a squirrel. So, thanks so much, and also a big thank you to Incog for sponsoring today's video, but more on that later. All right, so as a bit of a background, all of this is completely dependent on one single word: the ultimate Boogeyman of the entire economy, inflation. That's right. Even though we've made drastic improvements from the 9% inflation rate of 2022, inflation currently stands at 2.4%, which is higher than what the Federal Reserve would like, but it's on a trajectory of slowly continuing to fall. For example, in the most recent inflation report, it was found that energy prices dropped by 6.8%, used cars and trucks fell by 5.1%, hotels fell by 2.3%, and wait for it, lettuce is now 3.2% less.

expensive, okay, but null seriousness. The current inflation rate is a bit of a double-edged sword because, despite inflation returning back to somewhat normal, prices are still significantly higher today than they were a few years ago. And as a result, debt delinquency is back to its highest level in 12 years. However, the White House says that this is all a big error of calculation because, in their eyes, inflation is actually below 2% if you remove housing from the equation. That's right, when you calculate the level of inflation within our economy, one metric makes up a third of the overall rating, and that's what's called owner's equivalent rent. In this case, homeowners are surveyed and asked if they were to rent their home out today, how much would they charge? Well, that amount is calculated within the inflation report, and since housing prices are going up, that's reflected in the headline number that we see here. Except if you just remove that, since housing prices are the result of a structural shortfall and not inflationary pressures, then voila, inflation is now below 2%, and it's a job.

well done. Although before we go into the massive problem with this, along with why mortgage rates are going up despite interest rates going down, we need to talk about another metric that's extremely important: the stock market. Look, on the surface, the stock market has seen an absolutely incredible rise over these last 5 years. I mean, let's face it, the S&P 500 has doubled within that time frame. But as you're about to see, those sort of returns aren't exactly normal. Like, take a look at this: since 1924, the S&P 500 has increased overall by just 65% a year, or with dividends reinvested by 10% a year, which is even lower when you account for inflation. And as Goldman Sachs points out, there might be a scenario in which the next 10 years sees significantly lower returns than many of us have become accustomed to. How low, you might ask? Well, as Goldman Sachs points out, over the last few years, the vast majority of stock market profits are driven by what's called The Magnificent

7, which consists of Apple, Amazon, Alphabet, Meta, Microsoft, Nvidia, and Tesla. So, is this sustainable? And according to Goldman Sachs, it's not the way they see it. Valuations are some of the highest they've ever been when you compare that to earnings, and as a result, historically, that tends to mean that the stock market return returns over the following 10 years are suboptimal, or I guess, as they say, their model predicts annual returns ranging from plus 7% to NE 1% with a 72% probability that stocks will underperform bonds over the next decade. For Goldman Sachs, this translates to just a 3% annualized return over the next 10 years. Of course, not everybody agrees with data Trek, saying that while the stock market has endured decade-long stretches of 3% returns, those tend to follow very specific catalysts such as the Great Depression, the 1974 oil shock, or the 2008 financial crisis. Today, none of those look to be occurring, but you also can't deny that as of now, a few

very big companies make up the vast majority of stock market profits. And when you dig a little bit deeper, you'll begin to see that almost 70% of the S&P 500 is underperforming the overall index. Like, even Vanguard lowered their next 10-year projection to just 32% a year. That's why it's really important to understand that 15 to 20% annualized returns are not normal. It's probably not something that's going to happen consistently. And over the next decade or two, there's probably going to be a good chance that people don't earn the sort of returns that they would initially like. However, I do say all of that with a bit of a catch, because even though almost every analyst is somewhat pessimistic over the next decade, anything can happen, and there's a chance the stock market continues to rally, especially when you least expect it. For instance, Schwab seems to think that we could see a 6.2% return. BlackRock thinks 5.2% is possible. And if the money

printer turns back on full force. The sky is the limit, but as far as how this impacts the housing market, here's where things get crazy. Now, even though it might be hard to believe that existing home sales are on track for their worst year since 1995, it's not hard to believe that your personal data is probably floating around on the internet somewhere in the hands of data brokers, third parties, and spammers who are looking to target you. And it's becoming an epidemic. Look, as much as I enjoy talking about the markets, the sad reality is that anytime you make a purchase, anytime you sign up for a product or service, or anytime you give out your information, your data is being passed around and sold on the internet, resulting in spam phone calls, phishing attempts, junk emails, the list goes on. Thankfully, though, you do have a right to protect your privacy and request the data brokers remove the information they have about you. And even though it could take years to do yourself manually, it doesn't have to be that way with our

sponsor in cogni. They could do all the work for you by reaching out to data brokers on your behalf, requesting that your personal data be removed, and then dealing with any objections that websites or data brokers might have. And since many data brokers continue collecting your information even after they've removed it, Cogni makes sure that your data stays off the market with repeated removal requests. All you have to do is make an account, grant them the right to work for you, and sit back while they keep you updated every step of the way. They're also available risk-free for 30 days, so anyone is able to give it a shot and get a full refund if you're not happy with it. So, there's no reason not to try it for myself. This is essential in cutting down on the amount of spam phone calls and emails I get on a daily basis, and if you don't make an active effort to get your information removed, it's probably just going to keep happening. So, take down your personal

information today by going to incog dcom gram and use the code gram for 60% off an annual plan, or you could also use the link down below in the description. Thank you so much, and now let's get back to the video. All right, so if you'd like to hear where things get a bit wild, let's discuss the housing market. As of recently, it was said that existing home sales are on track for their worst year since 1995 for the second year in a row. Why? Well, most economists believe that home sales in 2024 would actually be going higher thanks to falling interest rates, but instead, the opposite happened. Despite falling rates, mortgages went even higher. This is because when the Federal Reserve lowers interest rates, what they're really doing is influencing the short-term borrowing of treasuries, or basically the borrowing rates over the next 6 to 12 months. But mortgages follow a completely different metric, the tenure treasury. Since most mortgages are only held for about 10 years, this becomes the biggest competition between

investors basically think of it this way: the 10-year treasury and the 30-year mortgage are nearly identical when it comes to risk-adjusted returns. So, if one moves higher, the other goes right alongside with it. That's why, contrary to the FED lowering interest rates, investors believe that inflation is going to be higher than anticipated for longer than anticipated, and that's resulted in mortgage rates remaining elevated. Results of the concern that the government's going to be digging themselves deep and deeper into debt, so there's a bit of that as well. Essentially, the FED doesn't have a lot of control over this, and the market's going to dictate whatever it believes is going to be most likely to happen, especially when it's said that future rate cuts will be a lot more modest. So, as a result, home sales are falling fast. As far as what this means for the future, Zillow believes that home sales are only on pace to climb 2% in 2024 and 0.9%.

over the next 12 months, with the main culprit being rising inventory. In fact, it was said that a quarter of first-time buyers are holding off until after the election, or more specifically, 26% said that they're waiting to see if Harris's housing affordability plan goes into effect, and 16% are waiting to see if Trump's housing affordability plan is enacted. Another culprit could also simply be that mortgages are expensive, housing is largely unaffordable, and some sellers out there are asking way more money than their home is ever realistically worth. On top of that, I'm also personally not a big fan of waiting on politically sponsored plans that may or may not ever happen. But the trend is apparently clear; we are slowly heading towards a neutral housing market as more inventory continues to be listed and fewer homes are being sold over list price. Rent growth is also slowing down quite a bit, with rents only increasing $1 over the last month. Look, anecdotally, as someone who's been closely involved in the real estate market since 2008, I

have to say I am seeing more inventory come up. I am seeing more price reductions than usual, and in some higher-end markets, buyers are getting the upper edge. But for entry-level homes, it's still just as competitive, even when mortgage rates are still high. Although as far as what the Federal Reserve has to say about this, along with their plan for the future, here is what you came for. As of a few hours ago, the Federal Reserve made their decision, as expected, to cut interest rates another 25 basis points, mainly because their preferred measure of inflation is trending back downwards. For example, take a look at what's called PCE or personal consumer expenditures. This tracks the cost of items from the perspective of businesses, and that tells us how much consumers are willing to pay across the board. Essentially, think of this a bit like the canary in the coal mine, where if businesses see reduced demand and lowered cost, that probably means inflation is coming back down. And in this case, PCE was found to have come in

at just 2.1% year-over-year, basically prices are falling, and this gives the Federal Reserve a little bit more room to cut rates. Now, unfortunately, not everything is sunshine and rainbows because there's one more element that's going to affect the Federal Reserve rate cuts in the future, and that's going to be jobs. See, here's the thing: the Federal Reserve's entire goal is to maintain price stability and maximum employment. So, even though prices are coming back down, the jobs market is not looking so good, and that's causing the Federal Reserve to take a little bit more action. For instance, the recent jobs report found that only 12,000 jobs were added in the month of September, and even though unemployment is still incredibly low, all things considered, it's still something. It's going to take a lot more observation over the coming few months, especially since employment is on a downtrend. Besides all of this, though, Jerome Powell ended up giving more of the same, which is basically that their goal is to maintain price stability.

they're monitoring the labor market, and that they're going to make all decisions based on the data that they get at the time. All of this suggests that we're probably going to see one more rate cut throughout the end of the year, most likely to the tune of 25 basis points. Although in terms of my own thoughts about this and what you could do, especially since we're around an election, here's what you need to know. Look, when it comes to the terrible jobs numbers, honestly, they could probably be chalked up to major hurricanes and strikes. But it is worthwhile to reiterate that employment numbers are trending lower, and if this continues, we're most likely going to see a series of rate cuts throughout 2025 as a way to spark up the economy. But even beyond that, we also have the topic of elections. Now, even though some people might really like or really dislike the results, the truth is when stock market returns are considered, it really doesn't make that big of a difference. For example, historically, the highest compound annual

growth returns came from a Republican president at 10.2%, but a Democrat president isn't too far behind at 99.4%. To take that a step further, when you begin looking at median returns, you'll begin to notice that Republican presidents have frequently been plagued by rather substantial stock market losses as well. And all of this means that average annual returns tend to be higher with Democrats at 12.9% versus Republicans at 99.9%. And yes, if that sounds confusing, just think of it like this: even though Republican presidents have overall had higher returns over the entire course of their presidency, there's also a lot more volatility, or buying opportunities as I like to call it, and that drags down the median return. All of this really suggests that at the end of the day, it doesn't make that big of a difference, and instead, we should focus on what we can directly control, which is keeping a consistent income, living below your means, saving as much money as you can, tracking expenses, and

then investing the difference consistently. To me, that's the most important in the long term. So far, stocks have only gone up. So, with that said, thank you so much for watching. Make sure to hit the like button and subscribe if you haven't done it already. And don't forget to check out our sponsor, In Cogy, down below in the description. Thank you so much, and until next time.

URGENT: Trump Wins, Federal Reserve Cuts Rates, Stocks Hit All-Time High!

As a 30 year old real estate agent and investor who started working in real estate shortly after turning 18, with over $120,000,000 in residential real estate sales since 2008, I've created this channel to share my successes, failures, and experiences in the real estate industry and to support others who are thinking of getting into the business. Oh, and I'm also obsessed with cars. A lot. So expect to see some cars uploaded to my channel. A lot. And Subscribe. Because all the cool kids are doing it.  

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Graham Stephan

The Federal Reserve has cut interest rates by 25 basis points, marking the end of the most restrictive tightening cycle in history.

This decision comes amid a slowing housing market and a decline in inflation rates, which currently stand at 2.

The impact of the rate cut is expected to be significant, affecting the stock market, housing market, national debt, and the value of the US dollar.

The Stock Market's Unusual Rise and Future Outlook

The S&P 500 has doubled in the last five years, but this level of return is not normal compared to historical data.

Goldman Sachs predicts significantly lower returns over the next decade, with a 72% probability of stocks underperforming bonds.

The concentration of profits among a few major companies and the underperformance of nearly 70% of the S&P 500 adds to the uncertainty, leading analysts to lower their projections for future returns.

The Impact of Data Privacy and the Housing Market

Existing home sales are on track for their worst year since 1995, despite falling interest rates.

Personal data is widely circulated on the internet, leading to spam and phishing attempts, but individuals have the right to request its removal.

Cogni offers a service to help remove personal data from brokers, with a risk-free 30-day trial and 60% off an annual plan.

The Impact of Treasury Yields on Mortgage Rates

Investors view the 10-year treasury and 30-year mortgage as having similar risk-adjusted returns, leading to elevated mortgage rates despite the FED's interest rate cuts.

Home sales are declining, with Zillow projecting only a 2% increase in 2024 due to rising inventory and expensive mortgages.

The Federal Reserve recently cut interest rates by 25 basis points, as their preferred measure of inflation shows signs of trending downwards.

Federal Reserve's Rate Cuts and Job Market Concerns

1% year-over-year, giving the Federal Reserve more room to cut rates.

However, the jobs market is struggling, with only 12,000 jobs added in September, leading to increased scrutiny from the Federal Reserve.

Jerome Powell indicates that one more rate cut is likely by the end of the year, with potential for a series of cuts throughout 2025 if the employment trend continues.

Comparing Stock Market Returns Under Republican and Democrat Presidents

Republican presidents have an average growth return of 10.

2%, while Democrat presidents are slightly higher at 12.

Despite higher overall returns, Republican presidents experience more volatility and substantial stock market losses, dragging down their median return.

The key takeaway is to focus on consistent income, living below one's means, saving, tracking expenses, and investing consistently for long-term financial success.