Rate Cuts Trigger Inflation — Stocks, Gold, and Crypto Melt-Up

The Federal Reserve is highly likely to cut interest rates by 0.25% at its September 17th meeting, with odds at 89.3%. Historically, when the stock market is near all-time highs, as it is now, rate cuts have led to modest gains over three months (2.1%), six months (3.8%), and significant appreciation over 12 months (13.9%), with the market rising 100% of the time a year out. This trend suggests waiting for a stock market dip might be counterproductive as time works against those hoping to buy lower.

Cutting interest rates is an inflationary measure, leading to surges in prices for financial assets like gold, silver, and Bitcoin. This occurs because rate cuts weaken the U.S. dollar, a devaluation that often corresponds with rising commodity prices. This easier monetary policy, which includes potential quantitative easing, debases the dollar and drives up asset values, a pattern evident in the S&P 500's performance over the past three decades.

Anticipation of these rate cuts has already caused bond yields to decline, lowering borrowing costs for the government and influencing mortgage rates, which are correlated with the 10-year Treasury yield. As Fed rates fall, consumer interest rates on auto loans and credit cards are expected to decrease, though credit card rates will likely remain elevated. Conversely, interest earned on savings accounts, CDs, and brokerage instruments like ESV will also diminish as the Federal Reserve lowers rates.

• Federal Reserve likely to cut interest rates by 0.25% on September 17th.
• Stock market historically rises after rate cuts: 2.1% in 3 months, 3.8% in 6 months, 13.9% in 12 months.
• Rate cuts are inflationary, increasing prices of assets like gold, silver, and Bitcoin.
• Dollar weakens with rate cuts, causing commodity prices to rise.
• Consumer interest rates on loans and savings accounts are expected to fall.

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Federal Reserve Rate Cut Probability [0:46]

• There's an 89.3% chance the Federal Reserve will cut interest rates by 0.25% at the September 17th meeting.
• The CME Fed Watch tool shows fluctuating odds, but a cut is highly anticipated.
• Even if not in September, a cut is expected soon, making the analysis relevant regardless of the exact timing.

This section focuses on the high probability of an upcoming interest rate cut by the Federal Reserve, citing specific percentages and market tools, and emphasizes that the underlying trend of rate cuts is significant regardless of the immediate meeting outcome.

Stock Market Performance After Rate Cuts [1:20]

• When the stock market is near all-time highs, rate cuts historically lead to flat performance in one month (down 0.2% on average).
• Over three months, the stock market gains an average of 2.1%.
• Over six months, the average gain is 3.8%.
• Over 12 months, the market rises by an average of 13.9%.
• Crucially, the market has gone up 100% of the time 12 months after rate cuts.
• Waiting for a stock market crash to buy in might be a losing strategy as time works against you.
• The odds of the market going higher are 45% after one month, 75% after three months, and 100% after one year.

This part details the historical impact of Federal Reserve interest rate cuts on the stock market, providing specific average percentage gains at different time intervals and highlighting the near-certainty of positive returns over a 12-month period. It advises against waiting for a market dip.

Inflationary Impact of Rate Cuts [2:57]

• Hints of interest rate cuts, like at Jackson Hole, caused gold to surge and silver to reach near recent highs above $39 per troy ounce.
• Bitcoin and altcoins rallied due to increased expectations of Fed rate cuts.
• Cutting interest rates is inflationary, leading to price increases across the board, including financial assets.
• The speaker references a previous video explaining this inflationary effect in detail, particularly relating to money supply.
• The money supply has indeed been expanding, supporting the inflationary argument.

This section explains the inflationary consequences of Federal Reserve rate cuts, linking them to price increases in precious metals and cryptocurrencies, and asserting that this phenomenon is driven by monetary policy and money supply expansion.

Currency Devaluation and Commodity Prices [4:25]

• Cutting interest rates weakens a country's currency; the dollar fell when odds of a rate cut increased.
• A weaker dollar causes commodity prices, including gold, to go up.
• The rising price of gold over 30 years is attributed more to dollar devaluation than gold's intrinsic value increase.
• Easy monetary policy devalues the dollar, leading to a loss of purchasing power and higher prices for financial assets.
• Charts of the S&P 500 over 30 years illustrate how easy money and inflation fuel rising prices.

This segment discusses how interest rate cuts weaken the U.S. dollar, which in turn boosts commodity prices. It frames the long-term rise in asset prices as a result of dollar devaluation driven by easy monetary policies.

Government Borrowing and Bond Markets [6:02]

• In anticipation of Fed rate cuts, interest rates on bonds have started to fall, lowering borrowing costs.
• The extent of these declines depends on the pace of rate cuts throughout the year and into 2026.
• The yield on the 3-month bill decreased after Jackson Hole due to rate cut expectations, benefiting the government by reducing its short-term borrowing interest expenses.
• The interest rate on a 10-year Treasury continues to decline, which is significant because mortgage interest rates are correlated with it.
• Mortgage interest rates have fallen this year as 10-year Treasury yields dropped, and falling mortgage rates are a tailwind for home prices.
• Yields on 30-year bonds also decreased post-Jackson Hole but are less influenced by Fed rate cuts as the Fed has more control over shorter-duration treasuries.
• The Federal Reserve could potentially lower longer-duration yields by expanding its balance sheet if needed.

This part explores the impact of anticipated rate cuts on the bond market, noting falling yields and reduced borrowing costs for the government. It highlights the correlation between Treasury yields and mortgage rates, suggesting a positive effect on housing prices.

Consumer Interest Rates and Savings [7:58]

• Interest rates on auto loans are correlated with Fed funds rates; if the Fed cuts rates, auto loan rates will follow.
• Interest rates on credit cards, while still high, should drift lower as the Fed cuts rates.
• As the Federal Reserve lowers rates, interest rates on savings accounts and CDs will also fall.
• The lower the Fed cuts rates, the lower the interest earned on these savings instruments will become.
• Instruments like ESV in brokerage accounts will also see a decrease in the interest they pay out as Fed rates drop.

This final section details how consumer borrowing costs, specifically for auto loans and credit cards, will likely decrease following Fed rate cuts. It also points out that the returns on savings accounts, CDs, and similar investment vehicles will diminish as a direct consequence of lower interest rates.