Insider Finance - Business - Insider Today: Rate-cut reality check

November 27, 2023 • 5 min read

with Dan DeFrancesco

Welcome back! We’re fully in the holiday season, and I’ve got the perfect place. This year-round Christmas Airbnb is a dream destination for holiday fanatics.

Speaking of the holidays, today is Cyber Monday, so check out all the great deals Business Insider's Reviews team uncovered. 

By the way, we’re still running our biggest sale of the year for a Business Insider subscription. 

In today’s big story, we’re looking at why the rate cuts investors have been praying for might not be the godsend they imagined.

What’s on deck:

But first, this might not be the relief you’re hoping for.

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Patrick Semansky/AP Photo

The big story

Rate cuts' double-edged sword

Start cutting rates, they said.

It will be fun, they said.

The Federal Reserve’s fight against inflation is taking hold, and that could mean central bankers finally lower rates next year. But rate cuts won’t necessarily be the win markets are hoping for, Business Insider’s Jennifer Sor writes. 

Investors have been begging the Fed to consider cutting rates for the better part of a year. Even as banks failed, the Fed held firm on its war against sticky inflation.

A cooler-than-expected inflation report was enough for banks and market experts to declare an end to the Fed’s tightening policy. 

But minutes released from the Fed’s most recent meeting didn't indicate cuts were imminent. The notes stated central bankers were comfortable keeping their monetary policy “restrictive” to clamp down on inflation.

Still, some interest rate traders are predicting rate cuts coming as soon as this March, according to CME’s FedWatch Tool.  

But it’s important to remember why central bankers cut rates. It’s not simply to let the market off the leash. 

A rate cut is likely in response to a slowing economy, Jennifer writes. And if the Fed were to get as aggressive as UBS suggests it might — lowering rates nearly three percentage points by the end of 2024 — that could be because we’re already experiencing a full-blown recession.

Another key piece of the economy facing headwinds complicates the case for rate cuts being a boon for investors. 

The Fed has long touted its goal of a soft landing: lower inflation while not cratering the economy. 

It’s primarily made good on that promise. The process hasn’t always been smooth (see: SVB, Big Tech layoffs, etc.), but the wheels haven’t ultimately come off. 

However, a key factor in keeping the economy afloat — consumers — is losing steam.

Retail giants Walmart and Target noted during recent earnings calls they were seeing consumer spending dip, Business Insider’s Dominick Reuter writes. It’s another sign that US consumers have blown through most of the savings they accumulated during the pandemic and are wracking up debt.  

And now the pullback comes on the cusp of the biggest season for consumer spending: the holidays.

So yes, rates will ultimately be a win for the market. But it’ll take plenty of sacrifice to get there.

News brief

Your Monday headline catchup

A quick recap of the top news from over the weekend:

3 things in

Markets

🔔 Before the opening bell: US stock futures fall early Monday as investors await updates about the start of the holiday shopping season.

Miles Goodloe/Domenic Boresta/Robert Oszust Jr.

1. How HENRYs save and invest. High earners, not rich yet have plenty of financial concerns despite making over $100,000. Six HENRYs from across the country detailed their approach to saving — with some socking away as much as 70% of their income — and how they approach short-term investing.   

2. Hedge funds come up short, literally. Funds have lost roughly $43 billion trying to short the market in recent days, according to the Financial Times. Their bet against stocks comes as the S&P 500 is on track for its best month since July 2022.

3. You know what they say about one person’s trash... Junk bonds have become a hot investment with rising optimism that the Fed is done raising rates. In the month leading up to November 20, bond funds saw inflows of more than $16 billion, the vast majority of which went to junk bonds.

3 things in

Tech

Amazon/Business Insider

1. Amazon is rolling out some big Cyber Monday deals. Some of the best discounts right now include savings on Echo speakers, PS5 bundles, and kitchen appliances. Our deal hunters have organized discounts by product category to make them easier for you to browse.

2. These 20 women in venture capital made partner or higher this year. In an overwhelmingly male industry, these women claimed a seat at the table this year. The list includes Khosla Ventures’ Alice Brooks and Founders Fund’s Jennifer Campbell. 

3. Meet the founder of the Failure Museum. Sean Jacobsohn started collecting objects from failed businesses a year ago. Since then, he’s collected more than 500 items that sit in glass display cases in his office. Plus, Jacobsohn said it helped him understand why businesses and startups fail.

3 things in

Business

Chelsea Jia Feng/BI

1. Americans ditched big cities during the pandemic. Many are now regretting it. They're further away from the communities and social network they spent years cultivating. Some have struggled to assimilate to their new communities. And many feel cut off from their identities, hobbies, and the friends they left behind. 

2. Bet your career on these five trends. Generative AI is fueling a lot of job changes, but it's not the only factor. Legislation, for example, is fostering a boom in infrastructure roles. And creators are a $250 billion industry.  

3. The latest workplace request from Gen Z: legal services. More young workers say they want legal help as a workplace benefit, according to a new survey. This desire comes as more Gen Zers are stressed about finances — and they expect to use the services within a year.

In other news

What's happening today

The Insider Today team

Dan DeFrancesco, senior editor and anchor, in New York City. Diamond Naga Siu, senior reporter, in San Diego. Hallam Bullock, editor, in London. Lisa Ryan, executive editor, in New York.

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