Monday, January 12, 2026
Are interest rate cuts doing what they’re supposed to do?
Most investors expect rate cuts to boost stock prices, unlock the mortgage market, drive up spending and keep the economy running hot. In other words, they view cuts as a magic wand that fixes everything.
But there’s no guarantee any of those things will actually happen.
Since 1989, here’s something that has happened consistently whenever the Federal Reserve starts cutting rates after a rate hiking cycle: the economy enters a recession.
Recessions followed rate cutting cycles in 1991, 2001, 2007, and 2020.
The Fed’s job is to keep the economy in balance via prices and employment. When things heat up, the Fed raises rates to provide some cooling relief. When things are cooling, the Fed cuts rates to stimulate economic activity.
Like it or not, rate cuts are a warning sign. They show the Fed is worried about a slowing economy, and by extension, a falling stock market.
Sure, this time may be different. It’s possible the central bank figured out how to thread the needle, keeping the economy perfectly placed while avoiding a recession.
But it hasn’t done that successfully in 35 years. Why would it get it right now?