At long last, after four years, the Federal Reserve has finally cut the Fed Funds rate by 50 basis points on September 18, 2024, bringing the target range down to 4.75% – 5%. The Fed then cut by another 0.25% in November 2024.
Expectations suggest we’ll see a total reduction of 100 basis points by the end of 2025. Fed Chair Powell remains optimistic, describing the economy as “very solid” and seeing no elevated risk of a downturn.
By 2025, the Fed Funds target rate could drop to 3.25% – 3.5%. With such clear visibility for rate cuts, the outlook for consumers and investors looks positive. As long as the Fed isn't behind the curve, as it was in September 2007 when it cut, we could see continued economic growth and rising wealth for most of us.
What’s not to love about that?
The Fed Cutting Rates When Stocks Are at All-Time Highs
How lucky are we that the Fed is cutting rates while the S&P 500 is at an all-time high? Few of us would have believed stocks would perform so well after the aggressive rate hikes of 2022.
Now, with rates coming down through 2025, it's like having your okonomiyaki and eating it too. Lower borrowing costs will enable companies to invest more, while lower interest expenses boost profitability. As businesses grow profits, they might also hire more employees.
Corporate earnings now have a tailwind, which is good for share prices. Although the S&P 500 is expensive based on historical valuations, if earnings can surprise on the upside, the S&P 500 can continue to perform. Trump is also president again, which means lower taxes for longer.
It almost sounds too good to be true—which is why it’s worth keeping a watchful eye. Corrections will happen again.
According to J.P. Morgan, “over the past 40 years, the Fed has cut rates 12 times when the S&P 500 was within 1% of its all-time high. In all 12 cases, the market was higher a year later, with an average return of 15%.”
The Fed Cutting Rates When Real Estate Is at All-Time Highs
Mortgage rates jumping from sub-3% to over 7% should have knocked the national median home price down by 10% – 20%. However, due to the “lock-in” effect, where most existing homeowners had already refinanced, inventory stayed low. As a result, home prices stayed steady during the hikes. Plus, roughly 40% of homeowners don’t have a mortgage, so higher rates didn’t affect them.
Now, with mortgage rates declining, recent buyers from 2022 and 2023 are considering refinancing. Meanwhile, longer-term homeowners might pursue cash-out refinances to tap into their home equity. What a gift—to make a significant gain on your home’s value and then use that equity to enhance your lifestyle.
Of course, more supply will hit the market as some locked-in homeowners decide to upgrade or downsize as life changes. But with lower rates, demand will likely outpace supply, placing upward pressure on home prices once again.
America already faces a structural shortage of over a million homes. With builders constructing fewer homes during the high-rate environment, real estate owners stand to benefit even more as the Fed cuts rates further.
An Economic Collapse Isn't the Biggest Fear
Your initial fear about the Fed cutting interest rates might be that they see the economy is in worse shape than the public realizes. The Governors of the Federal Reserve can't openly say they see significant weakness, or they risk sparking panic and accelerating or deepening a recession.
Look back to Fed Chair Ben Bernanke’s overly optimistic stance before the global financial crisis. If you listened to politicians or government officials at the time, you would have had no idea that your financial world was about to be engulfed by chaos.
However, the worst fear after a Fed rate cut isn’t upcoming economic devastation. Household and corporate balance sheets are strong, and access to credit has been more restricted since 2008.
If we do experience a recession, your investments might lose 10% to 25% in value, nothing as severe as the 2007–2009 financial crisis. Moreover, there's comfort in knowing the Fed has already started cutting rates. If the economy does visibly weaken, these rate cuts will eventually help. Though it usually takes at least six months for the effects to kick in.
Every month without a market crash brings us closer to being “saved” by the Fed’s actions in the future thanks to their cuts today.
The Real Fear: Making Too Much Money
Instead of fearing job loss or significant declines in your investments now that the Fed has started cutting rates, you should fear making too much money!
Absurd, you say! How can making too much money be a bad thing? More money sounds great! Being richer will relieve financial stress, allow you to better take care of your family, and help you retire earlier or at least more comfortably.
Maybe. Maybe not, if you can't control your desire for making more money than you need.
The problem with making more money is that it often awakens a money addiction you didn't realize you had. Once you get a taste of earning more from your investments or your job, you may start sacrificing the most important things in life for even more.
Greed is one of the seven deadly sins, and we've all experienced it! You can see it in real time as wealthy people continue to work at jobs they don't like due to the desire for more money.
Overworking When Times Are Good
For most people, when times are good, they work more. Everyone gets fired up to put in longer hours at the office because the Return on Effort increases. There are only certain windows of opportunity to make maximum money, so naturally, you push harder when times are good.
More opportunities arise when asset prices are rising, partly because people naively believe they will continue to rise at the same trajectory. With more opportunities come more work and more stressful decisions to make.
If you're still early in your career or far from financial independence, it makes sense to take full advantage of these good times. They don’t last forever.
Unfortunately, intense competition can take a huge toll on your physical and mental health.
The Pursuit For More Money Can Hurt Your Health
Due to your desire for more money, you may start developing chronic back pain, neck stiffness, or elbow pain. You might even start grinding your molars at night due to the stress you're enduring. Over time, you may forget what it feels like to be healthy, as you begin to accept chronic pain as part of your daily life. But it shouldn't be.
I experienced all these types of chronic pain while working in finance. At one point, I even paid $750 for a dentist to drill indentations in my back molars so I could close my jaw more comfortably and find some relief!
As you take on more work, your mental health may suffer too, as you constantly strive to keep up with or surpass your peers who seem to always be making more. Every month or quarter, there's a new quota to fill. The stress of always having to be a top performer may start to grind you down.
And it's not just about making more money—you also want to gain more status in society. Updating your LinkedIn profile with that next job title feels like the ultimate reward. Because if you're not the Vice President of so and so company, what are you, really?
Your Spouse And Children Won't See You Anymore
Imagine commuting 45 minutes to work, only to sit in front of a laptop for 10 hours a day. You might even have to jump into video meetings from the office, and then commute 45 minutes back. Madness!
But you have to do it because the Fed is cutting rates, and it's go time! Your company's share price is rising or your startup is full of promise, and your managers are rolling out new initiatives for you to meet. If you hit your targets, you'll get that 10% raise and the title you've been chasing for so long.
With the drive to make more money, being a stay-at-home parent during your kids' early years is out of the question. Non-stop meetings mean you'll never be able to pick them up by 4 p.m. to take them to soccer practice.
Instead of spending most weekends with your kids, you’re jetting off to yet another client meeting. You must close that deal, otherwise, you won't get that sweet year-end bonus.
You love your kids more than anything. But when times are good, your love will be tested every hour you're working to make more money instead of spending time with them.
And when they reach the age where all they want to do is hang out with their friends, you might regret all the time you spent chasing wealth.
The Pursuit Of Money Might Make You Lonely
Forget about never seeing your spouse and children again—your pursuit of money in a rate-cut environment might make you forsake love altogether.
Who has time for dating when there’s so much money to be made in a low-interest-rate world? And having kids? That’s out of the question—not only are they expensive, but they’ll also drain your energy.
Cultivating friendships can wait until you make that extra $100,000, $1 million, or whatever number you're chasing—because only then, you think, will it feel like enough. But the truth is, it’s never enough until you decide it is.
As Patrick Meagher and Bob Marley once said, “Some people are so poor, all they have is money.” Be careful not to focus too much on the quest for wealth.
Find a Better Balance with Money
Sacrificing love, friendship, health, and time is rational when you have no money. The good news is that if you do make these sacrifices, you’ll eventually earn enough to make lifestyle adjustments. The problem is, even after reaching an income or net worth goal, it can be too hard to quit chasing more.
Living in New York City and San Francisco, two of the cities with some of the most driven people, I see the hustle for more every day. There are people worth tens or even hundreds of millions who work in misery because they see their peers doing even better.
For your own well-being, strive for more balance. Diversify your time to include activities for your health, friends, and family, please.
After 20 years of saving and working, remind yourself there’s no need to push as hard during good times. You’ve reached the minimum investment threshold where work becomes more optional. This gives you the freedom to focus on more meaningful pursuits.
If you live in an intense, fast-paced city, you might need to relocate to a more relaxed area to break free from the desire for money and status. As you age, I promise you’ll start questioning whether sacrificing so much for wealth was really worth it.
Fighting The Desire for Money and Status
Maybe warning people about the desire for money and status is easier for me since I burned out and have been living the FIRE lifestyle since 2012. However, it's precisely because I took steps to quit the money chase that I'm healthier and happier than I was before.
Unfortunately, the contentment I felt for what I had did not last the entire time I’ve been gone. Since 2012, I've struggled repeatedly with the desire for money and status due to tax cuts, bull markets, and rejections.
Here are some examples:
I consulted for fintech startups from 2013 to 2015 because I wanted to make some supplemental retirement income and stay relevant in my mid-30s. I wasn't sure I had enough to permanently retire in San Francisco.
During COVID, a particularly challenging time as we had a newborn and had to pull our son from preschool, I decided to write Buy This Not That. I wasn't too keen on writing the book given my added childcare responsibilities. However, my son was rejected from six preschools, likely due to the lack of status of his parents. This rejection drove me to become a bestselling author.
In 2023, I bought a new forever home, despite having a perfectly fine one we purchased in mid-2020. I wanted to take advantage of price weakness and buy the nicest home I could afford while my kids lived with us. However, I also remember thinking it would be nice to have a nicer house than my peers. After not keeping up with the Jones for so long, once again I succumbed to comparison.
Today, I'm facing the consequences of my desire for more status—I depleted my passive income for this new house. Now, I've got to figure out how to make more money again. The cycle seems endless until we make a conscious effort to stop it.
Take advantage of the Fed rate cuts by making more money. But beware that when the time comes to stop, you might find it harder than you think.
Finally, there’s also the possibility of working hard, only to lose money in a declining interest rate environment. To soften that disappointment, it’s essential to cultivate interests beyond money and status. Wishing you the best as we navigate this new economic reality.
Reader Questions
What is your biggest concern now that the Federal Reserve is cutting interest rates? Do you think it's absurd or irrational to fear making too much money during a Fed rate-cut cycle? Are you ever worried that you're sacrificing too much time and health for money you don't need? How did you manage to overcome the desire for more money and status?
Here's my podcast episode on what a Fed rate cut means for real estate, stocks, and your retirement.
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Hi Sam, Thank you for this post, its one of the best best articles you have written. I am following you since very long, since I was new in the USA (almost 5 years).
It first, I was following you religiously and but as time passed I felt that you are too focused on Money, despite being in top 1%(or may be 0.1%!), you do not recognize your desire for “More” keeping you running and causing pain. But I now am glad that you also know the issue i.e. what you described in last section “Fighting The Desire for Money and Status”.
My background for context: 6years back I immigrated to US, I had almost nothing (except my B.S. Engineering Degree), today at 29years old, $250K/year salary & $500k Net worth.
I was on similar path as you. Until recently, I was too focused on making more money, saving like mad so that one day I can live FIRE lifestyle in HCOL city. However the process made me miserable, I have noticed deterioration in my Health (Anxiety, Grey Hair, Hair Loss and grinding molars!). I past few years, in pursuit of more $$, I spent less time with loved ones, moved to new city – so lost touch with my friends and I am single. Worst of all, I feel like I was more happy and care free before(all this pursuit started) then today.
Though on positive side I see my current situation (and this article) as wake-up call to have balanced life, to pursue what’s more important i.e. Health, Family & Friends. I have realized that pushing more harder to make more money won’t make me happy. I am at conferrable stage at my career and if I don’t get burned out and work for just 10 more years, I will be okay. I am not saying that one should stop working after he/she have enough, its just one should not force and let the time and destiny take its course. The important thing is to know what’s important in life and when its enough and when to stop.
I know yours is financial website, though really apricate these type of articles which focus on life as whole and hope to read more of such content in future.
Thanks,Rishabh
I rarely post, but I think this is one of the best articles you have written. Maybe it is just confirmation bias though :)
Thank you for the well described correlation of interest rate movements to the different asset classes and allocation options. Being in the software & data space for many years, I agree with an allocation in AI. Additionally, thank you for the reminder that we all should be enjoying our excess $$ as we go and wait until ??? means for each of us. My biggest asset continues to be my time and freedom to the things I want!
Really great article! Thank you
I don’t see how lowering rates by 50 to 100 basis points when the markets are already at all time highs does not add fuel to the inflationary fire. Please explain.
Economy is decelerating. So at the moment, economy is probably decelerating faster than the power of a rate cut because there is generally at least six month lag in its effectiveness.
But the stock market is always forward-looking, so the trick is figuring out the future.
At my age of 62, my children are self-sufficient, and my wife and I will be able to give them a nice inheritance. Now, my goal is to help my grandchildren, should they need it.
When do you plan to leave the inheritance? One of the problems parents have is deciding when to leave the inheritance because by the time parents pass away, their adult children will be already set financially.
So might be better to help them now during their difficult times while you are still living.
It is crazy to see already rich people continue to work insane hours, hardly take vacations, and miss out on their children’s lives for more money, status, and prestige.
Our hyper capitalist society is creating money and status addicts. The good thing is, kids are adaptable and probably don’t care if they don’t see their parents thanks to video games, mobile phones, social media, and hopefully in-person friends.
Let’s see how high stocks and real estate goes! Parents had better invest for their kids or else I’m not sure how the average 25 year old, 15-20 years from now is going to be able to afford anything.
Money addiction is very hard to quit. The fear is that when we’re on our death bed, we will regret spending so much time and energy pursuing money, especially more money than we need, at the expense of our friends, family, and health.
I’m sensitive to this regret much greater now at age 47, than at age 32, when I started Financial Samurai. So many people are randomly dying in their late 40s and 50s due to cancer and disease.
My whole outlook in life has changed this January after my cancer diagnosis right before my 45th birthday.
I did the whole chemo thing (words cannot describe the horror) and now in remission. The thing is now I think in 6 month increments when I used to think I would make it to 100.
Oh no, what type of cancer is it? I’m glad you are in remission!
I hope you can do many of the things you want to do now.
It is: nhl dlbc, a form of blood cancer.
You know it’s funny as I don’t know what I want to do.
I’m raising 3 little ones 6, 9, & 12. Plus paying for my 19 year old son’s colllege tuition, room, & board.
So my time is filled with them and my lovely wife when I’m not working.
Thanks for the unique perspective. I was surprised on the 50 bps raise as I was expecting 25 bps. It will be interesting to see how things unfold over the next 6 to 12 months
Sam, I appreciate your honesty about the dangers of greed and endlessly chasing status markers. I’ve been there and done that in my younger days. I would love talking with you sometime as I believe we do similar work in helping people see money in the context of all of life. For Wisdom & Money, the non-profit I work for, it’s about seeing money as a vehicle for personal transformation.
Keep doing what you’re doing! Sounds like a positive impact non-profit for those involved.
Glad you wrote this post. I think you are completely wrong. I suggest Peter Shift podcast is a better spot to get your information regarding what’s going to happen in the near future
Sounds good. That’s why there’s a market.
From your prediction from Dec 10, 2023, do you still think we’re headed to 4,200 by end of year? If so, have you been short the market since the beginning of the year?
“ Sam
I think the S and P will be under 4200 in December 2024
I will bet you 5000k if you are interested?
JJ”
You could be right that maybe people are not motivated to work harder and make more money in a low and straight environment. I hope there is more balance. I just got done playing Pickleball from 1:05 PM until 3:45 PM. And 70% of the players were under 40 years old, not having a care in the world. It was impressive.
Funny about the people playing pickle ball..like really, who cares.
Yes I will probably lose my bet. My Timing was off a bit. How about you check out what gold has done this year against every other index. Winning. You watch the stagflation we are coming into. Your clueless… good luck with San Francisco investing.buy a even bigger house next time.
It’s actually a pretty fun game and makes people happy. There’s a great community of both young and old playing together. Give it a try. I’m just sharing an example of younger people having fun during work hours, which is supporting your thesis, and going against mine in this post.
Why are you upset? It’s just a bet. You should be respectful whether you win or lose, as I was when I lost. I’m happy to own GLD too.
Is there something that is bothering you? To feel so negative when the markets, real estate, and the economy is doing well is tough.
Hi Sam
No I don’t care about the $5000 bet
What I care about is your lack of concern of what’s really happening in the world.
You talk about playing Pickleball at one in the afternoon in San Francisco in your little bubble… you’ll see it will pop. And I don’t care about what other followers think about this.
That’s not the real world. You live in a bubble
Things are going to change. And the fact that you’re not talking about, it is just unfortunate.
The fact is were on a cliff and you’re not talking about it. We’re headed into a real bad spot and you’re not discussing it. That’s all I’m saying.
JJ
Got it. I apologize for mentioning Pickleball and if it offended you.
The premise of my pos, thing to be most concerned about, is people’s unrelenting desire to make more money on a lower interest rate environment.
Given you disagree, I mentioned Pickleball as a way to SUPPORT your argument.
But it looks like you are not talking about my main premise, but instead are focused on how the economy and stock market are going to crash.
I will be more careful about mentioning Pickleball and people enjoying the activity in the future. This is my blind spot as I always thought exercise through sports was a positive. Lesson learned!
Are there some specific doom type of topics you’d like me to write more about? Have you been writing about it to spread the word? If not, would you like to write a guest post and take action on your beliefs?
Possibly
I will write my thoughts
Great. Be the change you want to see in the world. Otherwise, it’s just ranting and complaining.
JJ, we know it’s you Mr. Schiff. Sam, I like the comment vote feature. Good post.
you’re*
Not, your.
Now, there’s a blast from the (irrelevant) past: Peter Schiff.
The man who predicted the last 278 recessions and 14 depressions out of 3 actual recessions and 0 actual depressions. The man hasn’t made money for his clients for over a decade – but carry on, I guess.
So true. Peter Schiff has been so wrong for so long. I feel bad for his followers.
Sure, the market will definitely correct again. But to be bearish for the last 100% increase in the S&P 500 is outrageous.
I would be pissed off if I was JJ too, missing out on the huge run, losing a bet, and shorting the market. Ouch.
Hi Derik
No I’m not pissed off.. I have been dollar cost averaging into gold and mining stocks for the last 6 months. Currently at 1 million dollars. Returns are better than all the index’s… All I am saying is that Sam is wrong…he lives in is bubble.. that will soon pop. I know that your in his pocket but you and Sam are soon too loose a bunch of $$ and influence.. my opinion friend.
Jim – If you’re not pissed off and don’t care about the $5,000 bet, why are you acting so disrespectful? If you believe in your position, why be so condescending? It’s OK for people to disagree and have different opinions.
You don’t see Sam or anybody saying you’re “not living in a real world,” that you “live in a bubble,” and that you are “clueless.”
As far as I can tell, if you bet at the beginning of 2024 that the S&P 500 would close at 4,200 by the end of the year, you are the truly clueless one. You can name call people all you want, but you’ve got to learn how to live with your decisions.
The S&P 500 started the year at around 4,700. So you’ve essentially lost 21% shorting the market. Well done.
Instead, take your frustration out on your wife and kids instead and explain to then why you got it wrong all year.
I am not disrespectful, I am responding to him exactly how he treated me. You read Sam’s post and listen to his podcast when we made the initial $5000 bet. He thought I was a chump and he was happy to steal my money. He was wrong.,
I love my family, and I would never take out my frustrations on them.
The year is not done yet. I’m have not lost the bet yet….
And lastly, you assume that I’m shorting the market or not making money with my money? That’s a very wrong assumption.
I’m going to write a post that I hope Sam puts up. It’ll outline exactly what I think about what’s going to happen..
Jim, I’ve never responded to you in this manner. What is this business about “happy to steal your money”?
We made a bet and the money went to charity. Are you OK? What happened?
It’s just money Jim. This will be the last bet we will ever make. It’s my mistake for agreeing, despite your repeated asking. At least I denied your other bet for $10K.
Sam I have been working on a blog for 5 hours and I just don’t want to share it. I will gladly pay when/if I lose… I am done with your site. It’s just your view of life/world/bubble/group think/superiority/real estate/education/Early retirement..fire movement …are all different from mine…don’t need to read Financial Samurai anymore…. You have my email.. if I lose let me know. I will promptly pay. If I win, you’re going to pay to Foothills Church…
JJ
Great to hear you are working on it. Writing an article is not easy.
But if you don’t share it, how does it help anyone? You might get some angry comments from people who disagree, but for the most part, people are respectful, Share their viewpoint and reasons why, and don’t call each other names.
You just have to develop a thick skin as there are some highly emotional people out there.
You can copy and paste some of your points here in the comments if you wish.
Oh, but you are being disrespectful, Jim. And if don’t know this, may God save your wife and children.
Not sure why Sam puts up with your comments. They add no value and are just antagonistic.
Sam, what are your thoughts on a “one and done” rate cut. As you mentioned in the article, the demand side is looking strong and companies have learned how to regularly increase prices. It’s an easy way to grow revenue by maintaining the status quo.
Not going to happen given the dot plot guidance. It would completely wig out the stock market and cause tremendous volatility and uncertainty.
Investors, CEOs, politicians, like certainty so they can better plan for the future.