The Federal Reserve cut interest rates by 0.25% last week, a move widely expected by investors.
The Fed cited a weakening labor market, yet simultaneously raised its economic growth forecast for 2025 and 2026 and boosted inflation expectations. They now suggest inflation may not reach its target of 2.00% until 2028. But who can forecast that far out considering all of the issues?
I find this very interesting. The Fed’s economic growth and inflation forecasts have risen, yet they lowered rates and expect two additional rate cuts this year. It reminds me of the “inflation is transitory, I’m going to let inflation run hotter for longer” misstep of Powell.
Key question for retirees and investors: Will lower rates encourage hiring without reigniting inflation? Time will tell.
Corporate Profits, AI, and Consumer Spending
Corporate earnings continue to grow as companies adopt artificial intelligence (AI) and other new technologies. Many firms are hiring only through attrition while increasing efficiency. Meanwhile, consumer spending remains strong, driven by the wealthiest 10% of households who account for half of all US spending.
Tariffs may actually be accelerating AI adoption as companies look for ways to absorb costs and maintain profitability. Fewer human workers alongside increasing retail and business spending would certainly increase the bottom line, at least for the time being.
A good example: FedEx, an economic bellwether, beat profit expectations last week despite facing a staggering $1 billion in tariff costs [1]. This is further proof that businesses and consumers alike are still spending.
Interest Rates’ Impact
Many are hoping that lower Fed rates will ease borrowing costs, especially mortgage rates. Before the Federal Reserve’s announcement, Treasury yields and mortgage rates were declining. After the rate cut, both increased, mirroring their movement following the previous rate cut in December 2024.
The 10-year US Treasury yield briefly flirted with dropping below 4% but ended the week at 4.13% [1]. Investors appear worried that cutting rates while the economy is still expanding could fuel further inflation. Tariffs are also feeding into higher costs, with some being passed to consumers and some absorbed by corporations.
For retirees, interest rates play a crucial role in bond returns, portfolio income, and borrowing costs. I strongly believe that it’s time to reconsider how the Federal Reserve operates: both in terms of appointments and accountability. Since Chairman Powell’s appointment in 2018, policy missteps have created real consequences for markets and retirement planning alike. I am concerned the current situation may become even more problematic.
Stock Market Performance
Despite interest rate and inflation concerns, US markets posted gains last week. Contributing factors include the Fed cut, FedEx’s increasing profit forecast, and Nvidia’s $5 billion investment into Intel.
- Dow Jones Industrial Average: +1.01%
- S&P 500: +1.04%
- NASDAQ Composite: +2.00%
- Russell 2000 Index: +2.04%
International markets were mixed: developed foreign markets slipped 0.08% for the week, while emerging markets rose 1.41%.
So far in 2025, Healthcare remains the only S&P 500 sector in negative territory. [1]
Final Thoughts for Retirees & Investors
The mix of Fed rate cuts, AI adoption, tariffs, and inflation is reshaping the economy and financial markets. For retirees and those preparing for retirement, these shifts will affect income planning, portfolio diversification, and investment strategy.
Now more than ever, it’s important to remain disciplined, diversified, and informed. Staying on top of the Federal Reserve policy, interest rate changes, and stock market trans can help protect your retirement plan while identifying new opportunities.
As always thank you for reading. If you found this week’s blog informative, I’d like to ask you to share it with a family member or friend who may benefit from reading. Have a great start to the week!
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
[1] All market data sourced from The Wall Street Journal on 9/21/2025
