Despite persistent inflation, the Federal Reserve cut the benchmark interest rate by a quarter point yesterday during their last meeting of the year. The rate was lowered to a range of 4.25% to 4.5%, which is good news for borrowers, but overall, the move will most likely keep consumer prices on the rise.
Although the cut was predicted, many analysts stated that the current economy didn’t warrant an additional drop in rates. Despite this, Fed Chief Jerome Powell defended their decision, stating, “I would say today was a closer call, but we decided it was the right call” to cut rates. “The slower pace of cuts for next year reflects the higher inflation readings we’ve had this year.”
Powell admits the nation is still faced with sticky inflation and uses this reasoning to announce slowing down rate cuts for the new year. But why follow through with this additional rate drop when higher inflation is already predicted for 2025 – it has the capacity to make matters worse. It’s fair to ask if the Fed would have kept the benchmark interest rate alone in this year-end meeting had the election results yielded a different candidate.
Fed Foresees Steeper Inflation Ahead but Opts to Slash Rates Anyway
According to the Consumer Price Index, overall inflation increased in November compared to a year ago, reaching 2.7% and marking two months in a row with increased inflation. With average price gains having been in an elevated position over the past few months like this, Americans have continued to struggle to make ends meet, making it difficult to afford everyday essentials like groceries.
Related Article: The Shockwave of Inflation: Credit Card Debt Out of Control Amid Surging Prices
Last week, Bernard Baumohl, chief global economist of the Economic Outlook Group, in a note to clients, said, “I think a rate cut next week will prove to be a mistake because (a) it isn’t warranted and may backfire and fuel more inflation, and (b) it risks eroding Fed credibility.”
The Risk of a Recession in 2025
Because inflation remains problematic and began escalating again after the Federal Reserve started cutting rates, as shown in the chart below, some economists are now questioning their reasoning for dropping rates again.
Even more concerning is that there’s a risk of the economy falling into a recession. This is speculated because when the Federal Reserve dropped interest rates in the past, American economic activity began to recede afterward. Because of this, some analysts have suggested that we’re on the path to seeing a recession in 2025.
Related Article: 2025 Social Security Increase Likely to Fall Short
Critics Argue that Trump’s Policies are Likely to Fuel Inflation
Powell’s remarks highlighted “policy uncertainty” surrounding President-elect Trump’s proposals for tax reductions, tariffs, and stricter immigration measures. These are being looked at as possible inflation triggers and are tied to an uncertain path, and one reason the feds have held back their expectations when it comes to lowering rates further next year. Powell comments on this by stating, “It’s common-sense thinking that when the path is uncertain, you get a little slower. It’s not unlike driving on a foggy night or walking around in a dark room full of furniture.”
In reality, they should be welcoming these new policy changes because the economy has been in shambles over the past few years – the country needs a drastic turnaround, and some are saying that it certainly can’t get any worse.
Unstable Times Call for Citizens to Get in the Driver’s Seat of Their Finances
With no sign of inflation dissipating any time soon, and a possible recession on the horizon, it would be wise to take control of your own wealth by avoiding assets tied to the U.S. dollar and the government. These would include retirement accounts that are linked to Wall Street, such as a 401(k) or traditional IRA.
Related Article: Big Spenders in Washington Tank U.S. Citizen’s Retirement Accounts
We all know what happened to retirement accounts such as these when the pandemic hit – they sank, and Americans across the nation lost hundreds of thousands of dollars. It’s just not worth risking your life’s savings in this way when there are other alternatives. One such alternative is investing in real estate, and it’s simple to use your retirement account to fund a property purchase. You can read up on this by heading over to our post – How to Borrow from Your 401(k) to Buy a Rental Property.
Investing in Rental Real Estate is Secure and Lucrative
Protecting your wealth by adding tangible assets such as gold or real estate is something every U.S. citizen should be looking into, especially given the state of the economy. Hard assets such as these can protect your wealth from inflation, the ups and downs of the stock market, and other economic factors.
If you’d like to look into investing in rental real estate, feel free to reach out to one of our team members at Morris Invest, or visit our program overview page to see how we can help you secure your future.
Before you go, I recommend bookmarking this article we put together – Lubbock Recognized as Recession-Proof City Throughout the Pandemic, as well as diving into the following video that discusses the destruction of the U.S. dollar:
