The Federal Reserve just lowered the interest rate by half a point, the first time it has been lowered since 2020, and only the 2nd time it has been lowered by half a point since 2020 and 2007. Is this an accommodative move, or just another restrictive move to try to avoid disaster for as long as possible? Recovering investment banker Carol Roth joins to break down what this lowering means, the possible good and bad signs for why this is happening now, how it'll affect you and your bank account, and what we must continue to look out for.
Transcript
Below is a rush transcript that may contain errors
GLENN: Welcome to the program, Carol Roth.
I'm hoping you can make sense. And maybe some good news out of what happened yesterday.
Because I can't find a way to it. Because of the history of cutting the interest rate this much.
My first thought is, this is election interference by the fed.
My second thought was, when did they last do this?
And it didn't -- neither of those things lead to good things.
So what's really going on here, Carol?
CAROL: Well, I just want you to know, Glenn. I'm unburdened by what has been. Now the market, in terms of interest rates. Because we are in a rate cutting environment. And I think the important thing to remember is that when we talk about, you know, rate hikes. Rate hikes.
Anything the fed is doing. We have to keep it in context. And the backdrop is that we came out of 15 years of what's called zero interest rate policy.
Where the interest rates were at or near zero.
Unprecedented. As well as the fed putting $9 trillion, plus on its balance sheet.
So this is an unprecedented -- does not have analogue, that we can directly compare to.
Not to say, it's not important to go back, and look at what happened historically. But it doesn't mean exactly the same thing.
And cutting 50 basis points. And half a percent today. Is different than we are cutting it. When interest rates are at 2 percent.
I just want to put that out. Also, somebody, who as we said, on this program many times. That I think the Fed has been way behind the curve. I think they went up too high. And that they were too slow, to cut to begin with. So we'll put that from a backdrop standpoint.
So how does the market interpret, and how should individuals interpret a cut?
Well, there's potentially the bad. And potentially the food. We'll walk through both of those real quickly.
The potential bad is the signal.
When you are saying that the economy is doing amazing. And is just -- you know, it's ripping along.
And then to do a very large cut. They could have done half of that. They could have done 25 basis points. But to come out after not doing anything. And say, oh, we have to move 60 points.
Can send a signal, to say things aren't going so well.
If you looked at the market, yesterday, they were not taking news.
GLENN: It went up, and then when he cut it, it went way down.
CAROL: And once they gave back all the gains yesterday. But today, they have had a day to digest it.
And the market thinks that this is a good thing. Now, the market is not the economy.
GLENN: Yes.
CAROL: But again, after 15 years of zero interest rate policy, you know, it does make sense for us to get back to say to what is considered a neutral rate.
GLENN: Is this a -- is this an inflationary move though?
CAROL: So that's the question. So if you think about what the neutral rate is. Which is theoretical. We don't know the number. But basically, it's the dividing line between policy that is restrictive and policy that is accommodative.
And what we're trying to do is have the Fed have no influence in either direction. I believe that we are still in that restrictive area.
So bringing it down, from -- two, four, and three-quarters, to 5 percent. Again, is not the same as bringing it down to 2 percent.
And so I don't think that will cause inflation. We have to remember too, again, going back to where I started. Companies and individuals have 15 years.
To take out debt. And basically no cost.
This is sitting on company's balance sheets.
They took every piece that they could.
And consumers right now, don't have a lot of runway.
So the idea of, you know, a rate cut, unleashing massive demand, when we've gone to, you know, three-quarters to 5 percent.
I don't see this as something that is going to unleash massive demand.
GLENN: Okay. Here's. Here's. I would just like your opinion on this.
As a businessman. I know, I wouldn't be spending a dime right now, on hiring. Building. Anything.
Not a dime, until I see what happens at the election. And depending on the election, if we go with Harris, and we become much more restrictive, and harder, and more global, and everything else.
I'm -- I mean, I'm just battening down the hatches. If Trump gets in.
I would be willing to they have. Because all right. Good. We have somebody who understands business.
We can hire some more people, et cetera, et cetera.
I don't see anybody making those moves rationally, no matter what the interest rate is.
At this point. Do you?
JASON: I think that's a logical way to digest it. I think in terms of one of your first statements. Is this term, political.
The Biden Harris administration, will be pushing out and saying, look, we have inflation under control.
The Fed said so, otherwise we wouldn't have lowered it or lowered it by so much.
So I think that is the push that they are going out and trying to convince people. Now, they've been trying to convince people of things that makes absolutely no sense, for the last three and a half years. So if I'm a businessperson.
Do I go ahead ask make the investments?
But are there some people that might? It is a push. I think the challenges. It becomes a self-fulfilling prophecy. That if you get worried. That there is a recession.
And you create these restrictive behaviors. That becomes self-fulfilling. And that's one of the things that we end up worrying about.
GLENN: Correct.
So let me ask you about one more thing.
He mentioned the problem with unemployment. Unemployment is going up.
Because you just added 70 to 20 million people to the country.
Is -- I mean, people are saying, anecdotally that -- and we are I guess, seeing it in numbers, that the jobs that are being filled. Are being filled with illegals.
And not American citizens. How long can that go on, before it's just, you know, an absolute wreck?
JASON: So the way that I've interpreted the economy. Is I see it as K shaped.
If you think about the letter K. You have one at that one part of the K that goes up. And the other part that goes down.
And you have the people who are at the lower end of the K. Who have been struggling. And the people who are at that higher part in the K. The asset holders.
The people with the white color jobs in the homes, who have been doing well. And you have to remember, what we've been seeing, is that it really is that higher part of the K, that has been pulling the economy along.
So not only do we have those illegals who are coming in. And creating drains on everything.
Right?
They're creating drains on employment. On the national debt.
On housing. On everything.
But we're also starting to see, these cracks in the white color labor market.
When you hear Amazon saying, oh, we want everybody back in the office.
It means that companies now have the power to demand that. When they didn't have the power. And buried in that statement was. Oh, we're trying to get rid of some managers.
We're seeing more and more layoffs on the tech side.
So if we see that crack, from the white-collar piece. I think, at least in the short-term. That will have the biggest impact on shifting what's going to happen here.
And I think that's what the fed is signaling they're trying to get ahead of.
Whether or not they can do that remains to be seen. Because usually they're always late. But it's true. We have the drag on both sides. We have that drag that's happening on the white color piece.
And then we have this massive illegal immigration that is putting strains on the system.
And, you know, that is going to you, you know, completely shift things.
And I will say, Glenn. We hear all these people talking about technology. And AI.
And how it's going to replace jobs. You know, if you think it's going to replace jobs.
Jobs it will replace are unskilled workers. Right?
The person who is making your burrito with Chipotlé and the like. You can possibly make an argument that we do not need any more legal immigration in this country, with the exception of some very high merit-based people at all.
In addition to this, you know, travesty that is happening with the illegal immigration. So this is going to be, you know, hopefully, we can get President Trump in there. But this needs to be attacked in a serious fashion. Because it will have massive implications on the economy. On top of the biggest issue. And it feeds right into it.
Which is the debt and deficit spending that continues to grow that debt. The fact that that's unwieldy. So all of these things are puzzle pieces. But we can't let the noise about a fed rate cut. Or what's happening. Distract us from that big issue. We need to grow the economy. And we need to reduce spending.
So we can get debt to GDP back to a normalized level. And be able to save our country.
GLENN: Carol, thank you. I appreciate it. Carol Roth. The author of You Will Own Nothing. Former investment banker and a contributor to Blaze.
And also, to this program. I just love her. She explains things the way, you know, people like me, talk. Who -- just regular people. Carol, thank you so much.
It's CarolRoth.com/news.
CarolRoth.com/news.