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A graph tracking downwards labeled "Recession"

Macro Economics

Judy Dutton

brewmarkets.com

Hear that? A tsunami-sized sigh of relief just swept across the US now that the Federal Reserve has finally decided to cut rates for the first time this year.

After two tense days of deliberations, the Federal Open Market Committee announced its decision to 

Although this news was no shocker, escalating pressure from President Trump and a weakening economy have kept investors on their toes. The Fed also signaled that two additional cuts are in the cards before the end of the year—one more than central bankers expected back in June.

Fed Chair Jerome Powell maintained that the labor market was the main driver of today’s cut, explaining during the press conference, “Kids coming out of college, and younger people, minorities, are having a hard time finding jobs.” But he maintained that these cuts didn’t arrive “too late” as Trump loves to say, stating, “I think we were right to wait.”

The central bank’s 11-to-1 vote revealed less dissent in the ranks than anticipated. The only outlier was Trump appointee Stephen Miran, who was sworn in mere minutes before deliberations began yesterday. He voted for 

, although Powell noted that the FOMC’s new guy didn’t get much backup, saying, “There wasn't widespread support at all for a 50-basis-point cut this week.”

Although today’s FOMC dot plot map suggests we’ll see a total of three rate cuts in 2025, 2026 is a different story. Markets were anticipating two to three more rate cuts next year ahead of today’s meeting, but the dot plot revealed that the FOMC thinks there will be just one cut in 2026—

“The dot plot indicates a path of two more quarter point interest rate cuts in 2025, but significant dispersion in 2026, with some looking for significant cuts while others expect none,” senior investment strategy director at Seattle-based US Bank Asset Management Rob Haworth told Brew Markets. “The equity market initially cheered the move toward more rate cuts this year, but may be concerned about the dispersion of 2026 expectations.”

The economy continues to complicate the Fed’s juggling act of tempering inflation without undermining the job market. 

 in August to 4.3%, its highest level since 2021, and judging by Powell’s press conference, the labor market is becoming the Fed’s primary concern. But don’t forget that 

 2.9% year over year to a seven-month high, and Fed officials are still worried that tariffs might spark inflation to run a bit hotter than previously expected in 2026.

“The Federal Reserve is now stuck between a soft landing and a hard place with a weakening labor market, yo-yo consumption, and confusion over whether 3% inflation has taken up semi-permanent residence,” explained Running Point Capital Advisors Chief Investment Officer Michael Ashley Schulman.

One thing is for certain: Today’s interest rate cut doesn’t mean the Fed drama is over. If anything, it’s only just begun.

The first rate cut of 2025 has arrived

The Federal Reserve might cut rates two more times this year, and just once in 2026.

The rate cut we've all been waiting for

Lucy Brewster

After weeks of lukewarm macro data, political infighting, the erosion of the 

 of Truth Social posts, it’s finally happened: The Federal Reserve greenlit a quarter-point rate cut.

We’ve discussed what that means for the broader economy—when the Fed cuts rates, it supercharges businesses by making borrowing far cheaper, juicing the economy—but what it means for investors is less straightforward.

Some strategists believe that a rate cut means a “wall of cash” will replace the market’s “wall of worry.” In other words, now that rate cuts have finally arrived, the $7 trillion that Americans have parked in money market funds will 

Some data backs up that reasoning: JPMorgan pointed out that, historically, when the Fed lowers borrowing costs at the same time the S&P 500 is within 1% of an all-time high (which it is now), the market gets a boost of 

 It may seem counterintuitive, but analysts from Morgan Stanley, Oppenheimer, and others are warning of a potential downturn after today’s rate cut announcement.

The reason is that a 25-point basis point cut might not substantially boost the beat-up 

 as much as hoped. Considering that so much of the S&P 500’s recent record run is about AI hype centered around a key few stocks, if increasingly pessimistic macro data keeps coming out despite the rate cut, that could turn 

“In the near term, the risk for equities is the tension between weak labor market data and a Fed that still appears focused on inflation risks from tariffs. What this means for equity investors is that the Fed could disappoint the markets' ‘need for speed’ in terms of rate cuts in the near term,” wrote Morgan Stanley CIO Mike Wilson this week.

That being said, most pros still have bullish year-end price targets, despite the market’s sky-high valuations: “We expect S&P 500 earnings per share to grow 8% this year and a further 7.5% in 2026, and we do not see any negative catalyst on the horizon that could drive a material derating,” wrote UBS CIO Ulrike Hoffmann-Burchardi today.

It may not be smooth sailing ahead, but that doesn’t mean there’s no way to play the moment.

Citi analysts pointed to a group of stocks that are particularly sensitive to interest rate cuts, including DocuSign, Gap, EchoStar, 

, that could pop on today’s news. They also noted that small- and mid-cap stocks tend to benefit from rate cuts, as do growth investments. But that all depends on what happens next with the economy.

“The better the economic backdrop, the more attractive cyclicality and/or longer-duration risk assets become,” wrote Citi analyst Scott Chronert.

With a rate cut in the rearview, all roads lead back to one key question: Are we on the precipice of an AI-fueled golden age, or the edge of a cliff?—

What does the rate cut mean for investors?

Today's rate cut could benefit the market, or send it sinking.

What does the rate cut mean for you?

At a glance, today’s data seems to prove that the US economy is in good shape: Retail sales 

, handily beating projections of 0.3% and marking its third monthly increase in row.

On top of that, spending slowed down in only four of the 13 retail categories month over month, but all four categories saw annual gains. Oh, and July’s numbers were revised higher.

“We might be in a K-shaped recovery, but consumer spending is booming and regardless of the negative jobs revisions, the US economy is continuing to expand,” explained Chief Investment Officer for Northlight Asset Management Chris Zaccarelli.

Under the hood, one group seems to be driving that trend: 

That cohort was responsible for 49.2% of total

consumer spending in the entire second quarter—its highest level since 1989, and up from 48.5% in the first quarter, according to Bloomberg.

The wealthiest among us are feeling flush with cash, while the other 90% aren’t doing as well. At the same time consumer spending beat expectations, a parallel set of economic indicators paints a far darker picture of the economy: Hiring is slowing, inflation is still stubbornly persistent, debt delinquencies are up, and credit scores are dropping at their fastest pace 

Spending at the tippy top of the income distribution has helped keep the economy humming, but the high concentration also puts the entire economy—and the stock market—in a precarious position. After all, if the top 10% pulls back on spending, that single domino could trigger serious problems. Some economists already project a slowdown ahead.

“Adjusted for inflation, the picture is less upbeat, revealing consumers struggling to absorb tariff-induced price hikes,” wrote EY-Parthenon Chief Economist Gregory Daco in a note about today’s data. “We expect real consumer spending growth to decelerate from 2.4% y/y in Q2 2025 to 1.0% y/y by early 2026, and to maintain a modest pace below 1.5% through next year.”

Then again, not everyone is ringing alarm bells. “It always sounds smarter to be bearish and see threats around every corner, but a market that refuses to go lower—especially during the worst months of the year (September and October)—sends a strong signal that dips should be bought in 2025,” said Zaccarelli.—

The top 10% of earners account for almost half of spending

Retail sales looked strong last month, but consumer spending depends on the rich.

The 10% economy

It’s no happy Friyay today, at least for US consumers: The University of Michigan's latest consumer sentiment index 

 month from 58.2 in August to a preliminary reading of 55.4 in September.

Today’s reading is not only the lowest since May, but also defied analysts’ expectations that the index would actually rise to 59.3. Those high hopes were likely dashed by last week’s ominous 

, which showed unemployment creeping upward to 4.3%, its highest level since 2021. As the job market withers, wallets are also feeling pain amid rising inflation, with the 

 2.9% year over year in August, a seven-month high.

UofM’s survey also found that Americans don’t expect conditions to improve much, either, with predictions for inflation over the next year holding steady from July to August at 4.8%, and five-year forecasts rising to 3.9%.

“Consumers continue to note multiple vulnerabilities in the economy, with rising risks to business conditions, labor markets, and inflation,” Joanne Hsu, the director of the Surveys of Consumers, wrote in a statement. “Likewise, consumers perceive risks to their pocketbooks as well; current and expected personal finances both eased about 8% this month. Trade policy remains highly salient to consumers, with about 60% of consumers providing unprompted comments about tariffs during interviews.”

Although US consumers seem ready to curl up under the covers, investors seem more bullish than ever. How can consumer sentiment be so down when the stock market is so up?

“The stock market is not the economy,” Baird investment strategist Ross Mayfield told Brew Markets. “While the US labor market might be cooling, the AI trade is firing on all cylinders and with the stock market so concentrated in Big Tech stocks, it can often be telling a different story than the economy on the ground.”

Wall Street’s riding high on good odds that the Federal Reserve will cut rates during its meeting next week. This rate cut wouldn’t just be good for business, but could also improve consumers’ moods by making it easier to borrow money for big-ticket purchases like a car or a home. But that’s no guarantee, especially if people are faced with bigger-picture concerns like looming layoffs and egg prices rising to $20 a carton (again).

 trickle down to Main Street in the form of more jobs, higher wages, and fatter retirement plans. Here’s hoping that whatever happens next week puts everyone in a happier frame of mind.

Consumer sentiment soured last month

Americans are less optimistic about inflation and job prospects.

It's official: Consumers feel crummy

Mark Reeth

Most meetings could have just been an email—but there’s one upcoming get-together that no investor will want to miss.

The next FOMC meeting concludes exactly one week from today, and expectations for an impending rate cut are sky-high: The CME FedWatch tool shows that the market foresees a 92% chance of a quarter-point rate cut and a 8% likelihood of a half-point cut after the Fed’s September meeting. The Fed itself has projected two interest rate cuts in 2025, though there are some outliers among the governors who are 

 lent more credence to the idea that rate cuts are right around the corner. Wholesale inflation fell 0.1% last month instead of rising 0.3% the way economists expected, marking the first time PPI has declined in four months—and opening the door to interest rate cuts even wider.

President Trump certainly believes that today’s PPI reading means “Too Late” Jerome Powell should 

. “Just out: No Inflation!!! “Too Late” must lower the RATE, BIG, right now,” he posted on Truth Social.

But what are the crystal balls on Wall Street saying?

After the latest disappointing jobs market data last week, Bank of America’s vision of the future 

. The bank went from anticipating zero rate cuts this year to a total of two quarter-point cuts in 2025, with three more cuts next year. Goldman Sachs thinks it’s more likely that we’ll get three quarter-point cuts this year, and two cuts in 2026. That 3-2 or 2-3 split seems to be the most common call on the Street at the moment.

An interest rate cut may seem to be in the market’s best interest, but chief global strategist at JPMorgan Asset Management David Kelly recently warned that 

In an interview with CNBC, Kelly pointed out that many retirees have stored their savings in US treasury bonds—a fixed income investment that will take a beating from an interest rate cut. And while a rate cut should theoretically incentivize businesses and consumers to borrow more money, Kelly noted that the expectation of further rate cuts ahead may mean that borrowers wait until rates get even lower—curtailing hopes of a stronger economy as soon as the first rate cut arrives.

: Trump has nominated chair of the Council of Economic Advisers Stephen Miran to replace Adriana Kugler, and Miran’s nomination has now advanced to 

. That vote could happen as soon as this week, according to Barron’s—meaning Miran may take his post at the Fed in time to play a role in the FOMC’s interest rate decision.

Like we said, you won’t want to miss the two-day FOMC meeting beginning on September 16.

FOMC meeting predictions: Goldman Sachs, Bank of America

All eyes are on tomorrow's CPI report to see what Jerome Powell does next.

Fed dead ahead

Revisions or no revisions, the labor market is cracking under pressure.

Today, the Bureau of Labor Statistics reported that nonfarm payrolls only 

 in August, far below projections of 75,000 and a steep backtrack from the revised 79,000 increase in July. Meanwhile, the unemployment rate officially climbed to 4.3%, its highest level since 2021.

That wasn’t the only perturbing labor market data that we got this week: The 

 showed that the number of new job openings dropped by 176,000 in July, its worst reading since the pandemic in 2020. Plus, 

 that US private employers added just 54,000 jobs in August, far below estimates of 75,000.

As if all that isn’t bad enough, just look at those poor Gen Z-ers: The unemployment rate for 16-24 year olds has risen to 10.5% as AI begins snatching entry-level jobs. But the kids aren’t the only ones feeling the sting of artificial intelligence.

“We believe companies are investing in technology instead of human capital,” explained CEO of Laffer Tengler Investments Nancy Tengler in a note today. “We heard this from the companies during earnings, we see it in the business investment capex, which was up dramatically in the quarter and driven almost 50% by technology spending.”

The carnage isn’t expected to stop anytime soon, but the upside is that the Federal Reserve now has good reason to cut interest rates later this month. Traders now put the chance of 

“Tariffs and AI are weighing on job growth this year,” explained Chief Economist for Comerica Bank Bill Adams in a note today. “Economic growth will likely remain modest through year-end, then regain traction in 2026 as fiscal and monetary policy turn more accommodative.”

If all this macroeconomic bad news is bumming you out, at least we have our fearless leaders to guide us through these turbulent times.

Before today’s rough jobs report dropped, Commerce Secretary Howard Lutnick said that the numbers would be 

, given President Trump’s firing of BLS head Erika McEntarfer last month.

Yet when the latest numbers still showed the labor market is getting worse, the White House quickly changed its tune, with White House Advisor 

 that these "disappointing" numbers were off—and revisions were coming soon.

Really makes you wonder: Who’s going to shoulder the blame next?—

August jobs report was a huge disappointment

The US only added 22,000 jobs last month, well below expectations.

Where did all the jobs go?

You usually don’t think "high-stakes" when you think of a Senate Banking Committee hearing.

But all eyes were on today’s congressional discussion to confirm Stephen Miran, a White House economic advisor and Trump loyalist, to take the spot of Fed Governor Adriana Kugler, who unexpectedly announced earlier this year that she is stepping down.

After all, the fate of the entire economy hangs in the balance.

You might know Miran as the architect behind 

. But before becoming the chair of the Council of Economic Advisors, Miran was a conservative, free market economist who got his PhD at Harvard, then worked at a slew of investment firms. He later served as a senior advisor for economic strategy at the US Department of the Treasury during the Covid-19 pandemic.

Now, Miran looks to become a key part of Trump’s increasingly overt attacks on the Fed’s independence. The president is demanding that the Fed lower interest rates, and to force the issue, Trump has threatened to fire Fed Chair Jerome Powell, and has actually fired Fed Governor Lisa Cook for allegations of mortgage fraud.

Just this morning, the Wall Street Journal reported that the Department of Justice is officially 

During today’s hearing, Miran said he supports the Fed’s independence. “In my view, the most important job of the central bank is to prevent depressions and hyperinflations. Independence of monetary policy is a critical element for its success,” he said in his opening remarks.

He also noted that tariffs haven’t spurred on higher inflation the way that many feared they would, and promised that his thoughts on inflation would be “informed by the broad suite of economic policies, and not just monetary policy.”

While that sounds good on paper, in practice, his actions indicate Miran will retain his close ties to Trump if he’s confirmed.

He told Congress he plans to take an unpaid leave of absence from his role as chair of the White House Council of Economic Advisers through January—keeping 

 at the White House, effectively letting him pick up his old job right when his term at the Fed would end.

Considering his future career hinges on staying in the president’s good graces, only time will tell how independent Miran truly ends up being.