Fisher Investments Reviews Fed Rate Cuts

Transcript

Ken Fisher:

There are so many of these things that people get so excited about, and there are very few that people get regularly more excited about than either what the Fed just did (the Federal Reserve Bank), or what it's going to do, or what they think it's going to do, or what some member of the Fed board said, or what the chairman of the Fed said. And mostly, this is much ado about stuff that's not really very worthwhile thinking about.

The question: Would an interest rate cut in September of 2025 be necessary for the US economy? The answer is no.

Would it be bad for the US economy? The answer is no.

Will they do it? The answer is I don't know.

How big would they do it? The answer is I don't know.

The reality of worrying about what the Fed will do this month or this quarter is always something that I've said you're better off not focusing on first. Everyone else is. And whatever it is that everyone else is focused on is largely priced into capital markets already.

Therefore, unless they do something that no one's expecting, which happens sometimes, it's unlikely to have a big impact. Markets pre-price what everyone already expects, what everyone already talks about, what everyone already debates. Those things are not worth your time worrying about.

You should be worrying about something that everyone else isn't worrying about, thinking about, talking about, debating. Now let me go a different direction. Most people get this wrong. They think that whether interest rates are this level or that level from the Fed matters terribly. It matters, but not terribly.

What matters more is the spread between short-term interest rates and longer term interest rates and when the spread where short-term interest rates are low compared to long-term interest rates is bigger. There's an importance to that because banks are in the core business of taking in short-term deposits as the basis for making longer term loans. And when that spread is bigger, they lend more aggressively. And that fuels growth in the economy, because an awful lot of the world of business and commerce and even parts of the consumer world need borrowing to justify and be able to finance their activities.

And so when the banks don't want to lend, it's tougher for commerce to move forward. When they do want to lend more aggressively, it's easier and better. So in that regard, a rate cut of short rates dropping relative to long rates is a beneficial feature. The problem is that's not what you always get. Sometimes you do, sometimes you don't. When the Fed cuts short rates because that's all they have control over, sometimes that's in a world where long rates otherwise would be going up or down. And if they're going against the Fed move, it actually makes the Fed move superfluous. It's the spread that matters more than what the absolute level that the Fed sets rates at.

Now, I've written a fair amount about that. And over time, and sometimes that's more important than it is at other times, which is pretty much true for most things. But in reality, the focus on what the Fed will do in a month, in a quarter, in a year is something that, like so many other things that everyone else pays attention to, is largely already priced and therefore not very important to you, to the market and not that important to the economy.

Thank you for listening to me. I hope you found this useful. I appreciate you wanting to hear what I have to say.

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