In this commentary, the speaker reviews the Federal Reserve’s third 0.25% interest‑rate cut of 2024, explaining the central bank’s balancing act between curbing inflation and sustaining economic activity. He connects the policy move to recent micro‑level signals affecting small businesses: a July consumer‑spending dip, an October NFIB survey showing only 53% of small firms actively hiring (the lowest since 2021), and revised spring job numbers that revealed weaker employment than initially reported. The speaker also highlights election‑year dynamics, noting that University of Michigan consumer sentiment typically rises in the weeks leading up to a presidential election, reflecting a temporary optimism. He outlines the immediate upside for businesses that rely on financing—cheaper borrowing costs and lower variable‑rate financing—while noting the Fed’s cautionary tone about persistent inflation and a slower pace of future cuts. The core advice is two‑fold: (1) don’t try to fight the Fed’s policy direction, as its interest‑rate tools dominate macro conditions, and (2) small‑business owners should largely ignore macro headlines and focus on fundamentals—serving customers well, supporting employees, and maintaining simple, profitable pricing.
Chapters
So top of the news yesterday in all three kind of papers I subscribe to, uh, was that the Fed lowered interest rates again yesterday. And, uh, that's the third time it happened in 2024. So this would be the last time in December for the year. And, uh, the Fed is doing what the Fed does, right? Trying to balance taming inflation with keeping the economy kind of at the right level of heat. Not too hot, not too slow. And, uh, going from there. So, you know, as I thought about it overnight, what does this mean for small business, business, and CEOs in general? Uh, well, let's talk about it. So 2024, if you think about it from a small business perspective, and let's say your typical small business owner, you know, where things started to change for a lot of folks was in the spring. And we saw some data come through that 60% of people reported they were planning to spend less money for the Fourth of July than previous years. And for Minnie and my friends and stuff, you know, that's when it started to feel like things were changing on the ground, you know, as you ran a business. And I saw it too when I was out and about and watching other consumers and seeing people at different things I'm involved in. Like, just the— there wasn't the same level of enthusiasm. And I remember watching a customer and listening to them talk to their friend and saying, well, you know, last year I spent this much on this particular item. This year my budget is half that. And that kind of reflected the data that the Fed started to see, right? And so the Fed uses interest rates to put the brakes on or put the gas on the economy. Right now, the brakes have been historically, you know, on, on, the brakes have been on as opposed to the gas. And starting in September, that's when we saw kind of the first rate cut come out of the Federal Reserve. They started to see the softness in job numbers. There was a lot of revision from the spring numbers. And that's something that was kind of shocking. We had all these very positive numbers in the spring, and then a month later, the, the reports get revised down and show they were actually pretty crappy. And I'll try to put up the graph of the kind of history in recent times of the Fed's approach to interest rates. And yeah, you can see here the Fed has gone from trying to put the brakes on to changing its tune totally. And so if you think about the economy and small business and the whole community of those things, it's more like a battleship, right? You don't, you don't start to see changes immediately. And we saw that in October. One of the data points I found, which was unsurprising to me being on the ground, was that in October only 53% of businesses reported that they were actively trying to hire new people. And this is small businesses. This came from the NFIB, National Federation of Independent Businesses. That was the second lowest number since October 2021. So people not hiring, people not spending. That's why the Fed's doing what they're doing. And anecdotally, like, as I talked to my CEO friend, Steph, that's what they were seeing too, right? Contractor friends with all-time low levels of slowness in the fall. They were not seeing consumer demand be where it was. They were not seeing business-to-business demand being where it was. And they were getting ahead of it and they weren't hiring. When I talked in my last video about how economies are made of humans and humans are fundamentally flawed animals, right? As much as we want to be rational, logical, we make a lot of emotional decisions on stuff. And one of those things that radically affects the human psyche, and it happens every single election year when we vote for president, is people get stunned. They're like stunned sheep because we remember we're herd animals. And you look up and we're voting for a new president who's our new leader, who's going to make changes. And that all happens around the first week of November. And everybody just kind of gets themselves into a holding pattern. They're a little anxious about what's gonna happen, and then the election day comes. And in election years, it's pretty interesting. I'll see it in consumer sentiment, I'll see it in CEO sentiment. The moment that election happens and we get clarity on which way we're headed in the future, people relax and people start spending again. And it's interesting, the data backs this up. The University of Michigan does a consumer sentiment study and has realized that on the eve of elections, people's sentiment goes up. So they don't even know who's going to win. And the consumers, the consumers are already changing their tune to feel more optimistic about things just because the election is about to happen. So that brings us to today, which is the Fed, you know, yesterday went and cut rates again. So if you're borrowing, if you sell products that require financing, if you have variable rate financing, that's very good for you as a business owner. A lot of that stuff is suddenly much cheaper. But the Fed also said some stuff that wasn't as great, which is the economy is still very strong, job numbers are good, and that inflation isn't as tamed as they had hoped it would be. So they signaled they were going to cut less next year. So while they're going to continue to be helping by lowering rates, they're not going to be helping as much. So that brings us to kind of the last point I want to make, which is, as a small business owner, there's an old line that you don't fight the Fed, right? And the Fed is the one entity that can put the gas on or the brakes on the economy much more than any other, just by manipulating interest rates. The way they do. And that totally works. So what I've learned as a business owner, what great business owners I think have taught me, is that you don't fight the Fed. If they want to control the economy a certain way, they have the keys and they're going to make it happen. And right now, going into 2025, the Fed wants things to be improving and not slowing down. And that's good if you're a small business owner. But look, there's another way to look at this if you're a small business owner. Yeah, things got a little bit cheaper from an interest rate perspective. Things got a little bit better. And unless your small business is selling people mortgages, this is not— your small business is typically not tied that closely to what happens with the Fed's day-to-day interest rates. Uh, and so there's an approach which I like, which is, uh, even though this was the top story on all 3 newspapers that I subscribe to, uh, you just kind of ignore all this national noise. And if you, as a small business owner, focus on what really matters, taking care of your customers, taking care of your employees, buying it for a dollar, selling it for two, and doing things the right way. Like, small business can go along really well without worrying about all this macro crap. And yeah, but it's still fun to talk about.
