Today’s rate cut by the Fed will end in a 4.25-4.5% range, and many of us are wondering what this means for us. Fear not, my brave business leaders, and let us look at the economics of it all.
First let me give you the “boring” economics explanation. Short-term Macroeconomic Models suggest:
Interest rate decreases cause the Liquidity-Money to shift
This causes an increase in the overall output (GDP)
This results in a shift in the Aggregate Demand curve
This causes the price levels to increase (inflation)
Thus, Rate Cuts imply Inflation.
Now that you see how the graph was created on the Post-it, let us see what is REALLY happening around us, and how the Fed rate is likely to impact us (or will it?)
Current environment:
We have pretty high inflation in our markets.
This Fed rate cut has been anticipated for a while.
This was an election year with big changes politically.
It is the end of the year and fiscal year for most companies.
The crypto markets are booming and giving investment options.
Impact of this rate cut:
Negligible to none because it is a small cut.
The Fed is saying no more rate cuts are coming.
The goal might be to influence future expectations.
My Predictions:
They will cut rates 3 to 4 times by Dec 2025.
The rates will be between the 3.25-3.5% range.
Actionable Insights:
Don’t have knee-jerk reactions to rate cuts and over-invest.
Invest in technology & AI tools to increase productivity.
Hire/Upskill your employees to improve outputs.
Take historical and long-term views of ROIs.
Revisit strategy to prioritize production.
Do you have any concerns about the Fed rate cuts? Let's discuss.
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