The Federal Reserve on Wednesday finally gave the president and financial markets what they had been demanding for almost a year – a cut to the Fed’s target federal funds rate. Having cut rates by 50 percent last September to lead off a round totaling one percent over three meetings through December 2024, the Fed began this round with a more modest 25 percent cut. They also signaled two more cuts in 2025.

Just before last year’s round of cuts, I predicted they wouldn’t have the desired effect, for several reasons. As far as equity markets were concerned, they did not. Markets remained flat during the 2024 cuts and then sold off in early 2025, flirting with bear market territory by the March bottom.

Markets rebounded throughout the rest of the year, recently reaching new highs based on what we now know was largely inaccurate economic data. While the 911,000 downward revision to BLS nonfarm payroll reports represented a 12-month period ending in March 2025, the news after that is hardly encouraging. According to the BLS, the economy lost 13,000 jobs in June 2025 and created just 107 net jobs May – August 2025, net of those losses.

Nevertheless, stock valuations are at nosebleed levels even as official channels like the BLS and Federal Reserve acknowledge a weakening economy and resilient price inflation. If all this feels vaguely familiar, just remember that markets began selling early in 2008 before recovering briefly during the summer and then…well, you know what happened next.

History doesn’t repeat, but it rhymes, and we can only wait to see how much it will do so this time around. But there are substantial differences between 2025 that no one seems to acknowledge.

The most obvious and acknowledged are today’s significantly larger federal debt and recent history of rapidly rising prices. But it is interest rate policy itself that is fundamentally different and no one in the financial media seems to acknowledge that.

The Fed doesn’t lower interest rates today the same way it did prior to 2008 and the difference matters. For most of its history, the Fed lowered rates by increasing the money supply. It doesn’t do that anymore. In fact, it is currently lowering interest rates while decreasing the money supply, a schizophrenic policy that can only end in disaster.
 

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Tom Mullen is the author of It’s the Fed, Stupid and Where Do Conservatives and Liberals Come From? And What Ever Happened to Life, Liberty, and the Pursuit of Happiness? 

 Tom