Carry On, Wayward Son: The Federal Reserve’s Rate Cutting Cycle

Cutting Rates with noisy economic data

“Carry on my wayward son, there’ll be peace when you are done.” Kansas’ iconic lyrics echo in a time where economic peace feels far from reality. As the Federal Reserve cuts interest rates by 50 basis points—its first rate cut since the 2022 tightening cycle began—we’re left questioning: is this the signal of peace, or merely a lull before a greater storm? For many, the past three years have been an economic battlefield due to unprecedented inflation.

Since 2021, the U.S. government’s aggressive debt expansion and deficit spending have led to the rapid erosion of purchasing power. Over 20% of the dollar’s value has evaporated in just three short years. For perspective, under a “normal” 2% inflation environment, it would take nine years to experience that level of decline. We’ve done it in a third of the time. When looking at the data wages have not kept up with inflation at all since 2021 which has caused many Americans to say the economy is not working for them.

As we dive deeper into the latest economic data, the reality becomes even clearer. Retail sales showed a nominal increase of 0.1% this week. But adjust for inflation, and the number slips into the negative. Americans are paying more, but getting less. Goods are more expensive, yet their quantity is dwindling. The mainstream narrative pushes a “rising economy,” but this is the façade—consumers are struggling more than ever to afford even the basics.

But it doesn’t stop there. The younger generation—those in their 30s—are facing an unprecedented collapse in the quality of life. Since 2021, only 60% of thirty-year-olds live independently, a sharp -20% decline. Marriage rates have dropped similarly, with just 45% tying the knot also down -20% recently, while homeownership has plummeted to an abysmal 30%. These aren’t just numbers; they reflect the crushing weight of adulthood in an era where financial strain makes the milestones of life seem out of reach. The wayward generation is deferring dreams, and in doing so, watching their quality of life degrade.

Small businesses aren’t faring much better. The Small Business Optimism Index fell to 91 in August 2024, near a three-year low. For context, in April 2020, when more than half the economy was shut down, the index stood at 90. Inflation, the top concern for small business owners, continues to suffocate economic growth. Small businesses, which account for 40% of total GDP, are sending a clear message: things are not fine.

Then came the Federal Reserve’s decision today Sept 18—a 50 basis point cut, lowering rates to 4.75% to 5%. A significant alarm bell is ringing with this massive rate cut today.