5 Things You Need to Know About the Fed’s Rate Cut

The Federal Reserve’s decision to cut interest rates opens a new chapter in the DC Cartel’s long march toward bankruptcy for our country.

While the Federal Reserve’s decision to cut interest rates and expand the money supply may provide some relief to consumers and businesses facing higher interest rates, it comes at the cost of adding fuel to the inflation fire.

With the price of basic necessities rising by more than 20%, this move does not put the interests of Americans first. Here are the five most important things you need to know about the Fed’s rate cut and what it will mean for you and your family.

1. Federal Spending The Real Cause of the Problem

The federal government has mindlessly expanded in recent years, funneling more of our hard-earned money into the hands of bureaucrats and their allies. Federal spending can be paid for by taxes or borrowing.

Tax increases, of course, hurt Americans directly by taking away their paychecks and bank accounts. On the other hand, borrowing does more insidious and obscure harm. The federal government can crowd out private investment and eat everyone’s lunch at the money market buffet.

As the federal debt grows, it places a burden on every American. The Federal Reserve then faces a choice: print more money, which leads to skyrocketing inflation and prices, or refrain from printing money and impose disproportionately high interest rates on credit cards, potential homeowners, and small business owners.

Without cutting government spending, any action by the Federal Reserve will merely be a form of rearranging the deck chairs on the Titanic of debt.

2. The Fed Chooses High Inflation Over High Interest Rates

This dynamic means the Fed has a Sophie’s Choice between high inflation and high interest rates for consumers and businesses. For the past three years or so, the Fed has tried to tighten the money supply to reduce inflation, risking rising interest rates—and it has.

During that time, mortgage rates have risen from around 2.8% to well over 6%, peaking around 8%. That means the typical mortgage on an average-priced home will cost the homeowner more than $300,000 in additional interest costs over the life of the loan.

With inflation rates now down to around 3%, the Fed has decided to return to putting pressure on inflation to lower interest rates. The Fed seems determined to swing back and forth between the two as a way to deal with the pain of federal deficits.

3. The decision came just after federal interest costs topped $1 trillion a year

Of course, the Fed’s decision came just after federal spending on annual interest surpassed $1—nearly $8,000 per American family per year. When interest rates are high, it’s not just consumers and businesses who face high rates, but the government as well.

From this perspective, it seems rather selfish for the government to reverse its past policy and lower interest rates again at the cost of higher inflation.

4. This interest rate cut is suspicious right before the election

Fed action always takes time to filter through to the economy. And while tightening conditions can have a quicker effect on raising interest rates, easing takes longer for inflation to become visible.

That’s because markets tend to react quickly to the specter of tighter money by sending higher interest rates, but prices only rise when the newly created money flows fully through the economy. As such, the Fed’s decision to cut interest rates — and expand the money supply — is likely to lead to a wave of activity now, with inflation coming much later.

It’s analogous to the hangover that comes the morning after a night of drinking. The suspicious thing is that the hangover will almost certainly come conveniently after the election.

Inflation continues to exceed the Fed’s traditional 2% target. In fact, it’s much closer to 3%, while median inflation is well above 4%. So it seems even more arbitrary that the Fed would choose now—so close but strategically close to Election Day on November 5—to embark on a drinking spree.

5. The problem is only expected to get worse

The worrying thing is that the problem is likely to get worse. Modest estimates from the Congressional Budget Office suggest we can expect to add at least $20 trillion to the national debt — pushing it to more than $400,000 per American household.

If debt continues on this path, the conflicts between high inflation and high interest rates will only intensify.

Unless there are serious cuts in planned federal spending and debt accumulation, this burden will grow indefinitely. Every time the government spends a dollar, it commits to stealing that dollar from hard-working Americans—either through taxes or by borrowing and printing money.

There is only one solution: we must cut government spending before it further cripples the American dream.