This Week’s Briefing
In the wake of the pandemic, inflation soared — and the Federal Reserve responded with one of the sharpest tightening cycles in decades, hiking interest rates by more than 5%.
By late 2024, as inflation showed signs of cooling toward the Fed’s 2% target, policymakers pivoted. Since September 2024, the central bank has cut rates three times, with the Fed funds rate now at 4.25%–4.50%, down from its 2023 peak of 5.25%–5.50%.
Rate cuts are supposed to reignite growth. So why hasn’t the economy taken off?
The Data Behind the Story
GDP slowdown: U.S. GDP peaked at +4.4% in Q3 2023, but slipped to –0.5% in Q1 2025 (an outlier driven by import surges ahead of new tariffs). Q2 advanced readings bounced back to +3.0% annualized, but growth still trails pre-cut levels.
Expectations vs. reality: As JPMorgan notes, “Rate hikes in 2022 and 2023 didn’t hurt the economy as much as consensus expected. Now, on the flipside, rate cuts won’t likely lead to a boom.”
Rates still high: Even after cuts, borrowing costs remain above stimulative levels. One percentage point off the peak isn’t enough to ignite demand.
Policy overhang: Fiscal debt, new tariffs, and shifting government spending priorities continue to cloud the picture — limiting the impact of monetary easing.
Takeaway
Rate cuts are not a magic switch. They filter slowly through the economy, and their effects are often overshadowed by other forces — fiscal policy, trade disputes, or consumer confidence.
For now, the Fed’s easing cycle has taken pressure off, but don’t expect an overnight boom. This isn’t a new playbook — it’s the same lagging effect monetary policy has always had.
— Lauren
Editor, American Ledger