Focused Compounding Ep 473. What Happens to Stocks When the Fed Starts Cutting Rates?
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Sep 26, 2025 The hosts dive into the evolving role of the Federal Reserve and its current goals. They discuss how Fed transparency has shifted, moving away from being a 'black box.' The conversation reveals that recent rate cuts may signal recession fears rather than inflation concerns. AI investments and capital expenditures are debated as potential growth boosters despite consumer weaknesses. They also review past easing cycles' effects on stocks and explore structural challenges facing fintech companies.
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Fed's Modern Role And Independence
- The Fed's modern mission focuses on low inflation and low unemployment with a 2% inflation target.
- Its independence has increased over decades, making it more insulated from short-term political pressure.
Transparency Limits Policy Flexibility
- Greater Fed transparency creates constraints because public guidance binds future actions and complicates pivots.
- That forward guidance can help markets but reduces policy agility during shocks.
Cuts Signal Recession Concerns
- The Fed cut because it sees a recession risk, not merely to recalibrate policy.
- Recessions generally reduce inflation, which makes easing more justifiable when growth weakens.