Decoding the Fed
Hey there! Before we jump into today's newsletter, I just wanted to let you know that in the next few weeks, I have a bunch of great announcements that I will be sharing. So stay tuned!
I’ve also been adding a bunch of great short financial videos on Instagram and TikTok… I know… I also cringe when I hear that word. 😂
The Federal Reserve is waving a yellow flag, suggesting the economy might be easing up a bit.
Fed Chair Jerome Powell recently hinted that interest rate cuts could be coming soon, and he's pretty focused on the job market. We've seen a noticeable slowdown in hiring, and there's a risk it could get weaker.
It's not just Powell, either. Other signs are pointing in the same direction.
Together, these signals suggest some potential shifts in economic momentum that could impact interest rates, the markets, and your financial plan.
Let's dive into what's got the Fed most concerned: jobs.
Powell pointed out some worrying trends in the labor market. Over the last three months, employers have added only about 35,000 jobs per month on average. That's a big drop from the 168,000 monthly average we saw in 2024.
Long-term unemployment is also on the rise, with nearly 1.8 million Americans out of work for over 27 weeks—a 20% increase from a year ago.
Powell essentially said that while the unemployment rate has been stable, the recent data might "warrant adjusting our policy stance."
Translation: Interest rate cuts are on the table.
But the Fed chair isn't the only one raising concerns. Other reports are echoing the same message. One of the most telling is the Conference Board’s Leading Economic Index, or LEI.
Think of the LEI as a warning light on your car's dashboard. It pulls together a bunch of forward-looking signals from across the economy, like manufacturing orders, building permits, jobless claims, and consumer sentiment.
No single indicator tells the whole story, but when multiple indicators start showing similar warning signs, it's definitely something to pay attention to.
In July, the LEI declined for the sixth consecutive month.
The chart below illustrates how sharp LEI declines like this have correlated with recessions over the past two decades.
Action Items
So, what does this all mean for you?
For the economy, it suggests slower growth (and possibly a mild recession) is becoming more likely. If that happens, the Fed might cut rates to soften the blow, making it cheaper to borrow and invest. But it also means economic momentum is slowing down, which can affect businesses and workers.
For your personal finances, lower interest rates could reduce borrowing costs on things like mortgages, credit cards, or car loans. On the flip side, savings accounts and other interest-based products might see lower yields. Managing your cash flow and debt wisely becomes even more crucial in this environment.
For your investments, it can feel a bit counterintuitive. A slowing economy (which often leads to rate cuts) can actually be good for both stocks and bonds. Why? Because lower interest rates reduce borrowing costs, which can boost corporate profits and investor interest, especially in sectors like real estate and technology. Bonds may also benefit as yields fall and existing bond prices rise. That's why the S&P 500 hit a record high last week.
While none of this calls for immediate panic, it definitely warrants your attention. Stress testing your current strategy and a solid financial plan can help you navigate market shifts like these. If you’d like to review how these shifts might affect your plan, just reach out, and we’ll get a time scheduled.
~Alex
Whenever you’re ready, there are 3 ways I can help you!
Join the Academy : Ready to take control of your money, but not sure where to start? Lake Avenue Academy offers expert guidance, online courses, a supportive community, practical financial tools, and live workshops – all designed by Alex Chalekian, to empower your financial journey.
Book a 1-on-1 Meeting: Whether you're just getting started or further along on your financial journey and have a few questions, let’s talk.
Lake Avenue Financial: If you’re looking for financial planners who can simplify, educate and relieve the stress caused by money decisions, we’re here to help!
Be Inspired to take Action
Join over 8,000 readers of the Inspire Action newsletter for tips, uplifting stories and actionable steps to guide you through your financial journey.