😭 Where art thou, Jay Powell?!?

Hey hey, happy Monday.

I’ve spent a lot of time trying to untangle why this moment feels so miserable.

Yes, it’s the extreme rhetoric, the divided country, the uncomfortable feeling of whistling past the graveyard when you know economic danger could be lurking around the corner.

But there also seems to be an underlying tension that involves our favorite well-dressed interest rate nerds up in D.C. One that may be weighing you down, even if you can’t quite put your finger on it.

Today, a 6-minute read on why you can’t rely on the Fed to cut rates. At least not yet.

And if you want a deeper dive into why the Fed is being so stubborn, read my hot-and-fresh piece for Business Insider.

Smash the button below to share OptimistiCallie with a friend 😊

Build your RIA your way with Betterment Advisor Solutions

Wall Street is feeling a rare sort of pain, yet our interest-rate superheroes aren’t willing to save us.

For over a decade, the Federal Reserve’s job has been relatively straightforward. Keep the job market afloat and collect your paycheck at the door.

In practice, that looked like a swift response of rate cuts and calmer language during a crisis, which ultimately led to lower mortgage rates, higher stock prices and cheerier moods. This pattern now has people foolishly wishing for a recession, hoping that they will land on the opportunistic side of economic turmoil (good luck with that!).

Not this time, though. Since December, the Fed has been adamant about keeping interest rates relatively high as tariffs work their way through the economy and to our wallets. Not even stifling tariffs or a global bond market panic has made Fed chair Jay Powell flinch.

And everybody feels the absence. Especially the White House. President Trump wants Fed intervention so badly that he wants to fire Powell, a risky legal and reputational maneuver that seems to be the White House’s nuclear option.

Why, though? Could there actually be some healing power in 7% mortgages with $15 egg cartons? Or does Jay just like watching us squirm in pain as payback for the money printer memes?

The answer lies in stagflation, a mysterious garbled phrase that Wall Street keeps tossing around.

Hold on a second. If you’re wondering what the Fed actually does – read this primer.

If you’re already clued in, skip this section. I won’t be offended.

Let’s talk about stagflation – or the term for an economy in which unemployment is rising, prices are increasing and output is stagnant or shrinking.

Stagflation is one of the deepest economic trenches you can fall into. In a healthy economy, companies are growing profits, people are making money and things are affordable. In a stagflationary environment, none of these things are true. Corporate America’s profits are squeezed from higher costs and lower sales. Businesses lay off workers, and people lose their paychecks. At the same time, prices spiral higher. Everybody falls behind.

Stagflation is a vicious cycle. Luckily, actual stagflation is exceedingly rare – I’m talking like four quarters in the last 55 years rare.

Yep, stagflation was the crisis du jour in the 1970s, along with tragic poofy hairstyles and flared jeans.

Today, we are inching closer to stagflation, even if we’re not there yet. Layoffs are increasing, and companies are hinting that they’re nervous about the future. We’re starting to see the impact of tariffs creep into our everyday purchases, and based on the Fed’s on-the-ground research, “most businesses expect to pass through additional (tariff) costs to customers.” Economic growth projections from the Fed’s GDPNow estimate that first-quarter consumer spending stagnated.

The “stag” and the “flation” are both becoming evident. So as you can imagine, as a high-profile group of nerds responsible for ensuring people are making money and affording things, your Fed friends are stressing out.

Lower interest rates to help the job market, and you risk prices spiraling out of control. Increase interest rates to nip dangerous inflation in the bud, and you risk toppling the nation into mass unemployment.

It’s a tricky situation. Certainly more complicated than the 2010s, when inflation was barely existent. Or even 2022, when inflation was a problem but the job market was so on fire that quiet quitting was a thing.

So the Fed has decided to do nothing. Wait it out to see if one crisis neutralizes the other.

Honestly, it’s not a crazy idea. There’s a chance that retailers and factories won’t be able to pass on higher prices because consumers refuse to pay them. Usually, this happens when Americans can’t afford higher prices, a sign that something more sinister is afoot with incomes  and confidence. In that scenario, inflation becomes less of an issue — albeit for the worst reasons — and the Fed’s focus becomes clear.

But the wait has been excruciating.

For one, the Fed typically does something to soothe our worries. Since 1970, the S&P 500 has endured 13 drops of 18% or more. In nine of these drops, Fed policymakers have either lowered or increased interest rates.

Powell has also become notorious for calming us down through words instead of actions. In 2023 and 2024, the S&P 500 performed better in days when Powell’s name was in headlines more than usual.

Now, I need to make an important point here. The Fed does not use interest rates to save the stock market. If you believe this, you’re confusing correlation with causation.

The Fed cares about balancing healthy inflation with maximum employment. Sometimes, to achieve those goals, they make policy decisions that end up working out for your portfolio. But  they don’t explicitly care about your portfolio, even if your stock holdings are whipping around like they were during past crises. Sorry!

People are worried – from your street to Wall Street. There is a lot of anxiety out there. Now, economists at banks from Goldman Sachs to JPMorgan are talking about the likelihood of a recession.

I understand the temptation to wonder if the Fed can get ahead of what feels like eventual doom. Or even the need to feel like something should be done. Our little anxious 21st century minds love an action plan.

But unfortunately, we are not there yet, and the Fed’s hands are tied. Powell is in a reactive position, so we may not get rate cuts until mass layoffs appear in the job market. By then, we may be engulfed in an economic crisis. Not good.

We’re just not getting a lot of help here, period. Congress — that group of suspiciously quiet DC lawmakers — has stepped in before to support Americans through fiscal policy like tax breaks and stimulus checks. But with government deficit worries front and center and political emotions running hot, the best chance we have at fiscal intervention may be through annual budget talks. 

I wish I could give you the sweet reassurance that rate cuts are coming. But I can't. No one can.

You may feel Powell’s absence not just in the markets, but in your own money. When the Fed and Congress stay on the sidelines, the policy safety net we assume is there starts to unravel.

Add in the fact that traditional portfolio parachutes (like long-term Treasuries) aren’t offering the same protection — and you’re left absorbing the full shock of stock and bond markets. Bigger ups. Bigger downs. Less shelter.

Fed policy shapes everyday life, too — even if you’re just a casual observer of market headlines or a once-a-month index fund dabbler. Your savings account rate depends on it. So does your mortgage rate if you're house-hunting.

The Fed still holds a powerful lever. But you’re not powerless.

Take advantage of those sweet savings rates. Look for other portfolio cushions. Build a rock-solid investing plan you can trust through wild swings. Remember that your window of opportunity could be open to buy in at low prices.

Don’t wait for the Fed to save you. You have enough knowledge to save yourself.

Thanks for reading!

Callie

Like what you just read? Share it with a friend, pretty please 😊