[Simone Del Rosario]

To cut or not to cut? That was the question. The Federal Reserve said it was a closer call, but in the end, they said the right call was to forge ahead. Fed Chair Jerome Powell announced the committee’s decision to cut rates by another 25 basis points. That puts the benchmark interest rate down one percentage point on the year. But the cut comes as inflation is going in the wrong direction. November’s consumer prices rose 2.7% for the year, drifting away from the Fed’s 2% target. I want to bring in Aaron Cirksena, now founder and CEO of Modern Capital.

Aaron, it was no surprise that they went forward with this third cut in 2024, but is the data pointing that this was the right move?

[Aaron Cirksena | Founder and CEO, MDRN Capital]

Well, I think you could honestly make the argument either way. I think the data was leading enough that they could make still a quarter basis point or a 25 basis point rate cut this year. I think where we’re really going to start to see things maybe slow, comparative to what the thinking was maybe three or six months ago is going into next year, and how quickly they may be willing to lower rates continually next year.

[Simone Del Rosario]

Yeah, so we’re talking about inflation going up at the same time, the Fed has this dual mandate, price stability, maximum employment, inflation is now 2.7% higher than it was a year ago. The Fed’s target is 2% and it had bottomed down around 2.4% now it’s going up. Now the Fed is projecting that inflation will be higher than they expected in the coming year, is that of concern?

[Aaron Cirksena]

Well, I think it’s of concern in light of the fact that they’re not 100% sure of what some of Donald Trump’s presidency is going to involve when it comes to economic policy, I think that’s probably why you’re going to end up seeing them for a little while at least, put their foot on the brake pedal as far as the speed of which they’re decreasing interest rates next year is, I think they’re going to want to see a little bit more data on what things look like after this rate decrease. And then I think they’re going to really want to see what actual policies is he going to start implementing right right now, everything is still speculation when it comes to tariffs and everything else. I think they’re going to see what actually ends up happening when it comes to tariffs and whatnot that he’s talked about putting in place, and what impact is that going to have on the overall economy and on inflation numbers? Because if they start to see those continuing to tick up, it’s going to, again, probably make them put more of a hold on lowering rates further.

Simone Del Rosario]

Yeah, you’re spot on about that. Fed Chair Jerome Powell was saying today, look, we don’t really know what these tariff policies are going to end up being, so it’s hard for us to project out and determine how they might impact prices. He also said that today was a close call, a closer call, but they think they made the right call on this one. Markets didn’t think it was such a close call. I mean, they were very sure that this cut was going to be happening. Are you surprised that the Fed was questioning? It

[Aaron Cirksena]

not necessarily surprised that they said they were questioning. And I think you probably saw the data like I did that. I think some 93% of analysts had priced in a 25 basis point rate cut. So yeah, it was all but a known fact that they were going to do it. I think when Jerome Powell says that they were starting to get on the cusp of whether it was the right decision or not. That’s really him using some leading language into next year to I think just preface that, look, you’ve got to have some caution, right, that they might not be willing to just go into next year full steam saying yes, we’re definitely going to be lowering every time we sit down another six to eight times next year. I think at 1.3 months or so ago, that was kind of the assumption heading into 2025 I think now that’s starting to just get pulled back a little bit.

[Simone Del Rosario]

As I mentioned at the top of this, we’re now down one percentage point from where we started before the rate cutting cycle happened. Have consumers been able to really even feel the impact of these rate cuts, or is it too small?

[Aaron Cirksena]

Well, I think it’s a little bit too soon, honestly, for them to see it not necessarily too small. We’ve seen the Federal Reserve lower rates by 100 basis points, but that lowering hasn’t really crept in as much to things like 30 year mortgage rates and whatnot, where people can really start to see the impact of it, right? Credit card interest rate and things like that that are impacted by the Fed lowering rates almost immediately are still so high that I don’t know if people are necessarily seeing the impact there, and people do feel the impact right when their savings account yield maybe goes from yielding four and a half percent to 4% or three and a half percent. So those are more immediate impacts, but the things that play bigger parts in people’s lives, like mortgage rates. We just have yet to really see that creep in the lowering of interest rates into those sectors,

[Simone Del Rosario]  

and people have really been waiting for the housing market to loosen up and for those mortgage rates to get a little bit more within reach for them, and to see that the Fed’s projections now have their benchmark rate much higher in the coming. Year. How is that going to read? Are people, you know, should people take that to mean, don’t expect mortgage rates to go down much? I

[Aaron Cirksena]

think it would say, don’t expect mortgage rates to go back to where they were, right, when we were at bottom barrel interest rates. I think that was something that we’re probably not going to see for a pretty long time into the future. So could you eventually see over the course of next year mortgage rates on, say, a 30 year fixed mortgage start to go down a little bit from where they are now to maybe more in that 5% range eventually, hopefully, sure, are we going to eventually go back to seeing mortgage rates in the high twos or the low threes? No, I think we’re probably going to be a ways off from that, because the Fed is really trying to have more of what they would consider a normalized rate that’s just a little bit higher than what we were used to a few years ago. Yeah,

[Simone Del Rosario]

and look, those low rates came with a pretty poor economic conditions, right? We had the great recession, we had COVID So there were reasons that those rates were so low that maybe we don’t want to inflict on the rest of the economy. Aaron Cirksena, a founder and CEO of Modern Capital. Thank you so much for your thoughts

[Aaron Cirksena]

Simone, absolutely thanks for having me today.