Federal Reserve Easing - Not So Fast My Friend!

Fall is in the air, and with it, college football is back in full swing (with a semi-professional feel these days)! The excitement of rivalries, cross-conference matchups and, of course, the beloved pre-game shows like Big Noon Kickoff and College Gameday, are all around us.

Lee Corso, one of the mainstays of College Gameday, has perfected the art of building momentum in a conversation, only to step in at just the right moment with his signature phrase, “not so fast, my friend,” shifting the conversation in a new direction.

Much like that, there has been a lot of buzz around last week’s 50 basis point interest rate cut by the Federal Reserve (Fed). Financial media, professional circles and even everyday Americans are buzzing, and for good reason! This marks the first easing cycle from the Fed since the 2019 pivot, which preceded the zero-interest-rate policy during the COVID-19 pandemic. Last week’s announcement is certainly a historic moment, and one we will be discussing for years to come.

Now that the dust has begun to settle, we feel it is an opportune time to offer some perspective on what this rate cut means. There are several key considerations that asset allocators should keep in mind when planning for clients' portfolios. Many financial professionals today have not experienced an easing cycle like this during their careers. The last three easing cycles were all either followed by, or coincided with, major crises: the Tech Bubble (2000), the Global Financial Crisis (2008) and the COVID-19 pandemic (2020). While each easing cycle has its own unique characteristics, this one—at least for now—appears to be different from the previous three.

What We Are Hearing on the Current Federal Reserve Easing

So far, most of the commentary we have seen has been positive—though not universally so. The general sentiment seems to be that the Federal Funds rate was too high and too restrictive, and that the cut offers some much-needed relief. Broadly, we have observed two major schools of thought among market participants:

1. The Fed is stepping in to support the market by lowering rates, injecting liquidity and bolstering asset prices.
2. Lower borrowing costs, tied to the Federal Funds rate, are expected to stimulate economic activity (though there is some misunderstanding about how much borrowing is actually based on this rate).

"Not So Fast, My Friend"

In the spirit of Lee Corso’s timely interventions, we would like to point out that there are a few important factors that may be overlooked in the current discussion:

1. Quantitative Tightening (QT) is still ongoing: While the Fed has lowered the target rate, it also made clear that QT will continue. The official statement reads, “The Committee will continue reducing its holdings of Treasury securities and agency debt and mortgage-backed securities.”¹
2. Mortgage rates remain high: The average interest rate on existing mortgages in the US is just under 4%, about 2% to 2.5% lower than the rates available for new mortgages today. With borrowing costs for homeowners still high and stable 10-year government bond yields, the benefit to homeowners from this rate cut is limited.
3. Asset prices signal caution: Certain assets—such as gold and defensive sectors like Utilities, Consumer Staples and Healthcare—are performing well, which often indicates that market participants are becoming more risk-averse.
4. The yield curve has normalized: For an extended period, the yield on 10-year Treasury bonds was lower than that of 2-year Treasuries, creating an inverted yield curve, which historically signals a potential economic slowdown when this relationship normalizes. Well, the curve has recently normalized, which could indicate that economic concerns are lessening—though this is still something to watch closely.
5. The Fed lowers rates for a reason: As a steward of the US financial system, the Fed generally cuts rates when it sees warning signs in the economy. While employment numbers and economic indicators appear solid, the Fed may be acting preemptively based on early signs of potential weakness. The reason for the rate cut may be more important than the cut itself.

What Should Advisors Do Now?

Returning to the College Gameday analogy, Lee Corso’s famous helmet selection signals which team he believes will win the game. While that is fun for a pregame show, advisors operate in the real world, managing real assets for clients.

At SS&C ALPS Advisors, we believe this is a critical time for advisors to reassess risk in their clients’ portfolios, ensuring they are well-positioned based on each client's individual risk tolerance and capacity. It is particularly important to focus on clients who may not have the ability or willingness to weather a market downturn, whether because of their time horizon or personal preferences.

As always, communication is key during times of change. Getting ahead of market volatility can make future conversations easier and provide peace of mind for clients in uncertain times.

Important Disclosures & Definitions

1 Board of Governors of the Federal Reserve. (2024, September 18). Federal Reserve issues FOMC Statement [Press release].

Basis Point (bps): a unit that is equal to 1/100th of 1% and is used to denote the change in a financial instrument.

Federal Funds Rate: the target interest rate set by the Federal Open Market Committee (FOMC). This target is the rate at which the Fed suggests commercial banks borrow and lend their excess reserves to each other overnight.

Quantitative Easing: a monetary policy strategy used by central banks where they purchase securities in an attempt to reduce interest rates, increase the supply of money and drive more lending to consumers and businesses.

Quantitative Tightening: a monetary policy strategy used by central banks where they reduce the pace of reinvestment of proceeds from maturing government bonds in an attempt to raise interest rates, decrease the supply of money, and reduce lending to consumers and businesses.

AAI000765  09/24/2025