The Fed Cuts, Inflation Doesn’t Blink

The Week the Fed Blinked

The Federal Reserve finally pulled the trigger on its first rate cut since December—25 basis points down to 4.00-4.25%. The official line was “risk management,” a cautious nod to a slowing labor market. But peel away the press release and you find the real story: inflation is still very much alive, and the central bank is cutting not because it can but because it has to.

Core PCE remains sticky, housing is still a pressure cooker, tariffs keep flowing through supply chains, and yet the Fed is nudging rates lower on the hope that inflation’s embers are cooling. Hope is not a strategy, and the gap between market expectations and the Fed’s own dot plots is widening. Investors are already pricing in more cuts, faster, as if the fire is out. The Fed, meanwhile, insists the flames are under control. One of them is wrong.

Labor: The Weak Link

The justification for cutting rates rests on the jobs market. Hiring has slowed, unemployment is creeping higher, and the narrative is shifting: protecting employment now matters as much as squeezing inflation. Job growth has softened, and the Fed is increasingly leaning on that weakness to justify easing.

Inside the committee, the split is glaring. Some governors warn inflation is still the greater risk and argue for restraint. Others insist the current rate is “excessively restrictive” and all but guarantees layoffs if left unchanged (Reuters). This isn’t the picture of a confident central bank. It’s a split committee staring at the same data and reaching opposite conclusions.

For workers, the stakes are obvious: a weaker jobs market means less bargaining power, fewer raises, more layoffs. For HENRYs, it means your income trajectory and savings plans are now at the mercy of a Fed trying to smooth a landing on a runway it can’t see.

Politics in the Room

And then there’s the elephant in the room: Fed independence. One dissenting vote at this week’s meeting came from Stephen Miran, a Trump appointee, who argued for a deeper 50-point cut. His reasoning strayed well beyond economics—crediting tougher immigration policy for inflation’s decline. At the same time, the White House’s attempt to oust Governor Lisa Cook ended up in court, raising the question of whether monetary policy is being steered by economics or by political calculation (Cook v. Trump).

Markets don’t like uncertainty, and nothing says “uncertain” like a central bank losing its veneer of independence. Investors can live with hawks or doves; what they can’t price is a Fed that looks like it’s being bent around the needs of the next election cycle. Credibility, once lost, doesn’t return easily.

The Market’s Blind Spot

Wall Street is cheering the cut, treating it as an “all clear” signal. That’s dangerous. Lower policy rates don’t mean lower risk. They mean the Fed sees enough weakness to justify easing even as inflation runs hot. In other words, the central bank is trying to fight two fires with one hose—and the water pressure is running low.

Bond yields remain elevated, credit spreads are twitching, and volatility lurks just under the surface. Morgan Stanley is already asking whether 2025 is “the year of the bond.” But if inflation doesn’t break lower, duration risk will eat that yield alive. Buy-the-dip has stopped being a strategy—it’s become a superstition.

Strategy Spotlight: Surmount’s AlphaFactory Protective Framework

The Fed can cut rates, but it can’t cut uncertainty. Markets are celebrating a quarter-point move as if it were a magic fix, but the reality is more fragile: if inflation flares again or labor softens too quickly, volatility spikes. That’s when discipline matters more than optimism.

Surmount’s AlphaFactory Protective strategy is designed for exactly this environment. It systematically balances a portfolio of major U.S. equities against gold, adjusting exposure based on market volatility. When conditions are calm, it tilts toward stocks. When turbulence rises, it scales back risk and leans on gold as ballast.

The point isn’t to “time the market.” It’s to recognize that risk isn’t constant — it shifts with policy missteps, inflation shocks, and political interference. For HENRYs juggling careers and capital, this kind of framework provides a rule-based way to stay exposed to growth while automatically pulling back when the air gets thinner.

In a world where “buy the dip” has turned from strategy into superstition, protective discipline is the smarter play. AlphaFactory Protective doesn’t promise returns; it offers a structured defense against the very uncertainty that’s now shaping the cycle.

Big Picture

This week’s cut marks the start of a new phase in the cycle. The Fed is easing, but inflation hasn’t been beaten, the labor market is wobbling, and political pressure is only getting louder. For investors, that means the real risk isn’t just whether rates fall—it’s whether confidence in the Fed itself does.

The last decade taught investors to trust the Fed to keep markets aloft. This time may be different. And if credibility is the casualty, no amount of quarter-point cuts will save the landing.

Stay sharp. Question the narrative.

— Analyzed Investing

Educational content only; not investment, tax, or legal advice. Markets change—so should your priors.