The Dividend Cafe - Wednesday - September 17, 2025

Episode Date: September 17, 2025

Fed Rate Cut Analysis and Market Reactions - Dividend Cafe In this episode of Dividend Cafe, Brian Szytel discusses the latest Federal Reserve rate cut by 25 basis points, bringing the Fed funds rate to a range of 4 to 4.25%. He reviews the Fed’s dual mandate shift from inflation concerns to labor market softening, the unanimous vote except for one dissent favoring a larger cut, and projections for additional rate cuts by year-end. Brian evaluates the Fed’s upgrade of GDP growth projections and the sustained inflation rate around 3%. He examines market reactions, interest rate trends, and potential impacts on credit spreads, small caps, and money markets. Lastly, he explores the implications of substantial funds in money market accounts and uses a Eurozone case study to contextualize interest rate impacts. 00:00 Introduction and Welcome 00:08 Fed's Policy Rate Decision 01:59 Market Reactions and Analysis 03:04 Credit Spreads and Interest Rates 04:03 Money Market Funds Discussion 06:50 Conclusion and Final Thoughts Links mentioned in this episode: DividendCafe.com TheBahnsenGroup.com

Welcome to the Dividing Cafe weekly market commentary focused on dividends in your portfolio and dividends in your understanding of economic life. Good evening and welcome back into Dividend Cafe. This is Wednesday, September the 17th. Brian Saitel back here with you on a big Fed day. So today was the end of the FOMC policy rate decision meeting and done some announcements there on rates, largely in line with expectations. We got, Fed funds that was cut by a quarter of a percent. So 25 basis points. That brings us down to four to four and a quarter percent on Fed funds. That was widely expected from all the last data that we've been getting. They talked a bit about their dual mandate and what has now shifted from an inflation concern mainly around tariffs. And Powell unpacked that a bit in his press conference a little bit more, has now shifted into the softening that we've seen in the labor market. And so that's what's warranting there, bringing interest rates down. Out of all 12 voting members,

all of them voted for it. There was one dissent, which was the newest member that was recently appointed in Miran, and he voted for the 50 basis point rate cut. But dot plots are suggesting, again, in line two more rate cuts before the end of the year. So fairly clear path telegraphed from now through Christmas on Fed policy. They did upgrade things like GDP. That was a 1.4. This is a real rate, remember net of inflation, 1.4% to 1.6%. That's a good thing. Inflation was largely in line, still elevated around 3%. But again, that risk just shifted a little bit more on the labor side and they felt like they could warrant bringing the interest rate down here a little bit. Dot plots into the future were a little lower than expected. But, you know,

I'll be honest, over the years, the expectation of the Fed getting their one to two to three when people start quoting them out to 2028 and things. It's really pretty silly. They've never gotten any of that correct. It's hard for them to really give you a long-term estimate. I'd say anything between three to six months is pretty fair game. Above that, their guess is about as good as yours, which is about as good as mine on how this world will turn exactly. You've got some gyrations right on the announcement. This always is the case. You get traders trying to game things one way or the other. This was not an announcement that shook markets other than just momentarily. Ten-year actually did break 4%. You got into 3.99, essentially, intraday. You ended up closing on 10s at 4.08% that's a little bit

higher. Rates have moved lower across 2s, tens, and 30s. If you look out 30 days, and they're about the same if you look out, say, 5 to anywhere from between 5 and 10 days. So I call it all a pretty balanced breakfast. Markets have priced this thing in on the bond market. The two things I'm looking at most right now, we talk enough about valuations and stock prices and all that. But you know, to see where the Fed is as far as them being ahead or behind the curve, the long end of the interest rate curve now is more indicative of that. The short end has already rallied now down to a level that's going to be indicative of where Fed funds will ultimately get to.

But I think if you look at the long end, it's going to tell us a little bit more about whether you've got a Fed that's a little behind the curve on rates or ahead of the curve as far as being too tight or too loose on policy. And then on credit spreads, the level that we're at just feels tight to me, meaning credit is rich. There's a risk to obviously that component. And I don't know that it's fairly priced at 270 or so spread. I don't know that it blows out a lot. I just think that that will be a little bit of a litmus test as to whether the healthy tension that I talk about between what is now inflation, growth, and labor remains in check. I believe that it is based on today's market action

and the announcement. But I think those two things will be a pretty good indicator for me going forward. And if you're asking which component of all of this is mispriced or where there's risk, frankly, has yet to be seen. You've got to rally in small caps right around the announcement, which obviously would be a bullish sign. And then that came off before the close. I'm looking at fundamentals. I think the Fed is going to be completely data dependent until their next meeting, where they're likely going to cut again. And then you've got earnings that are going to come out next month. And that's what I'm paying attention to here at this point. The question in there today was about the massive amount of money and money markets. There's $7.4 trillion roughly sitting in these

money market funds. And that's very true. And sure, there's some dry powder there. The question alludes to in the full disclosure is this particular client had forwarded an article talking about this and was asking questions specific to that. But, you know, is that going to flow into risk assets? And is that some sort of a big powder keg that's going to send prices up and all this stuff? My take on that is short answers no. I think that some of it will find its way into the short-term bond market when people start to pick up or want to pick up a small spread on their cash. So if they were used to getting a 5% yield and now they've settled for 4% or are they going to settle for 3.5 or 3 and a quarter at some point, what should probably get into the threes or even just below,

you might find some of that money trickle into a short-term five-year treasury ladder or CD ladder or something like that to try to pick up the 30 basis points you'll get out of it. That's fine. But as far as it flowing into risk assets like equities and real estate and hedge funds and things. We haven't seen it before. I don't think we'll see that again. I think cash has grown with the overall net worth of the country. We're a wealthier nation than we were 10 years ago for lack of a better way for me to describe it. Cash has roughly been about 3.5% of balance sheet of investable net worth for the past 10 years. So what we were, an 88 trillion dollar net worth country and now 169 trillion. If you just take 3.5% of both of those numbers, you get to 3.5% of both of

those numbers, you get to a $3 trillion money market balance and now a $7.4 trillion. It kind of jives. So I think it's roughly in line. In other words, I don't know if I would call that a giant, enormous massive powder keg of dry powder. I think I would say that it kept pace with all the other assets that are out there as well. That's my take on it at least. I love it to be wrong, frankly. And if money finds its way in other risk assets, I suppose that's me talking my own book, it would be good for dividend stocks and everything else we do. The other thing I wanted to throw in there just as a case study for this particular person was, if you're interested in the most dramatic way to see if interest rates affect these cash balances, you can take interest rates negative.

And the Eurozone did that, if you remember, for seven, eight years, 14 to 22. They took basically short-term rates negative. And did you see money markets go to zero and everything, go into other risk assets? You actually didn't. You saw it flow to other parts of the world, and you saw a weakening euros. the currency. So there was some of that, but not as much as you'd think. The jury's out on exactly why. But the take that I took from it was that if there's a negative rate of return and you need more money and savings to afford your future expenditures. But anyways, funny case stories to think

about in the same type of paradigm with the money market balance that we've now seen. So I'm going to leave you there with that for tonight. I've gone on long enough. We will be back with you tomorrow. We'll have a live day for you. With that, have a good evening. We'll talk soon. Thank you. Bye-bye. professionals registered with Hightower Securities LLC, member FINRA and SIPC, with Hightower Advisors LLC, a registered investment advisor with the SEC. Securities are offered through Hightower Securities LLC. Advisory services are offered through Hightower Advisors LLC. This is not an offer to buy or sell securities. No investment process is free risk. There's no guarantee that the investment process or investment opportunities referenced TIRAN will be profitable. Past

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