| Hey everyone. Sooo … the Fed cut interest rates on Sept. 17.
You’re probably thinking: “Wow, Paula. That news is three weeks old. You’re finally writing about it now?”
Yep. Yep. “What are you going to tell us next? Hey everyone — We landed on the moon! Pearl Harbor attacked! Dewey defeats Truman!”
Fair point. But here’s the thing: Sometimes there’s value in pausing, taking a breath, and actually assessing the landscape before rushing to commentary. I know — that’s a shocking concept in this 24-hour news cycle. It’s counterculture to the way mainstream media operates. Sometimes the best analysis comes after the headlines fade. The day after the Fed cut rates, headlines screamed about the fact that mortgage rates ticked up slightly. People were confused, and that became the dominant conversation on financial social media on Sept 18. Now that the dust has settled, we can see the bigger picture. So let me give you a wide-lens October economic update — where we stand right now, and what it means for you. #1: “Buy the Rumor, Sell the News” On Sept 17, the Fed cut rates by a quarter point. This was so widely expected that the markets had already priced in a 100 percent probability it would happen. In fact, prior to the Fed meeting, futures markets were betting 91 percent on a quarter-point cut and 9 percent on a half-point cut. Here’s what’s interesting: The day after the cut, mortgage rates actually ticked up slightly. People freaked out. “Wait, the Fed cut rates but my mortgage rate went up? What’s happening?” The reason is simple: markets had already adjusted for the cut before it happened. This is what former Fed economist Karsten Jeske (“Big ERN”) refers to as “buy the rumor, sell the news.” When everyone knows something is coming, the market moves in anticipation. Then when it actually happens, there’s no new information to react to. Therefore, if you want to capitalize on a Fed rate cut, the best time to do it is before it happens. Fortunately, there’s still time for that. The Fed is widely expected to announce two more cuts this year, on Oct 29 and Dec 10. “It seems that the market is pricing in back-to-back rate cuts for the rest of this year,” Karsten told me in our recent podcast interview. “One in this [September] meeting, one in October and one in December.” He and I sat down together in Portland, Oregon last month for a livestream interview about what the anticipated series of rate cuts might mean for you. If a person is thinking about buying, selling or refinancing their home, but they have the benefit of flexibility, when is the ideal time?, I asked. He answered using a stock market analogy. “[Imagine] some event where you say, “Oh, this is going to be really good” — say for a stock. They’re going to release their earnings or they’re going to release some announcement that they invented a new product. That’s actually the high point of that cycle.
“And then after that [announcement], the rally fizzles a little bit.
“And [rates] could be like that too, right? Where the bond market has priced in all of these very generous rate cuts [based on anticipation].
”I would almost say, if you actually have to time a decision, [it] wouldn’t be a bad idea to do it at or around the time when they first announce the sequence of rate cuts.” In other words, now. October through December. But if you can’t make a move right away, that’s fine. Because the markets are anticipating future cuts in 2026 as well.
So where do we stand now? As of the week of Oct 5th, the weekly national average for a 30-year fixed-rate mortgage was 6.37 percent, according to Bankrate. That’s pretty close to the 52-week low of 6.26 percent. Here are two pieces of context that matter: First, 6.37 percent is actually pretty average when you zoom out to a 40-year view. These rates just feel high because we got spoiled by the 2008 to 2020 era, when rates were historically low. That period was the exception, not the rule. Second, the bigger story is the lock-in effect. According to National Mortgage Professional, 80 percent of existing homeowners have a mortgage rate below 6 percent. More than half — 52.5 percent — have a rate below 4 percent. And one in five homeowners has a rate below 3 percent. This means most homeowners don’t want to sell, because they’d be trading their low rate for a higher one. And that’s why there are very few buyers on the market. — Existing homeowners, who have the benefit of equity — and therefore could qualify as buyers — are trapped by “golden handcuffs.” — Aspiring first-time homeowners feel frozen out through the one-two punch of surging home prices (relative to 2020) and high interest rates. Result: A lack of buyers on the market, which makes it a (low competition!) fantastic buyer’s market for the people who qualify. This window won’t last forever, but it will likely stay in place for the rest of 2025 and at least the early part of 2026. #2: The Jobs Picture (What We Think We Know) Here’s where things get weird. There’s no official jobs report this month. The government shutdown means the Bureau of Labor Statistics hasn’t published its usual First Friday report. This is the first time I’ve ever had to say that. But we do have data from ADP, which is a private payroll processor covering about 26 million U.S. workers. According to ADP, we lost 32,000 jobs in September. The pattern is striking: the smaller the company, the harder it got hit.
So big companies are doing fine. Small companies are struggling. The big reveal is coming in early November. Federal employees who resigned earlier this year and received severance packages — those packages mostly expired at the end of September. This means October will be the first month when those former federal workers are officially counted as unemployed. So tune into my November First Friday episode (Apple | Spotify) (air date: Friday, Nov 7) for what’s sure to be one of the most anticipated jobs reports in a while. What does all this mean for you? Short answer: The labor market is softening, but it’s not collapsing. If you have a job, you’re probably fine. If you’re job hunting, it might take longer than it used to. If you’re a small business owner, you’re navigating a tougher environment than big companies are. And if you’re wondering, “How can the economy be strong, if we’re losing jobs?” — Here’s the answer in one graph:
#3: Maybe 70 is the new 67 Here’s something that got a lot of attention recently: The Social Security Commissioner suggested that the full retirement age might go up to 70. Right now, full retirement age is 67 for anyone born in 1960 or later. But Social Security is heading toward insolvency. The trust fund that pays most benefits (OASI — Old Age and Survivors Insurance) is projected to run out of money in 2033. What happens then? Benefits don’t go to zero, but they get cut. If nothing changes, beneficiaries will receive 77 percent of scheduled benefits. If OASI merges with Social Security’s Disability Insurance trust fund (which is another proposal that’s on the table), then it won’t become insolvent until 2034 and beneficiaries will receive 81 percent of scheduled benefits. So basically, we’d kick the can down the road by a year. And improve things long term by 4 percentage points. That’s not really a solution. So what are the options to fix this? One option: raise the full retirement age to 70. According to the Congressional Budget Office, this would solve about half of the shortfall. Half. That means we’d still need other measures — like raising payroll taxes or increasing the income cap on Social Security taxes — to close the gap. (This is why I like Roth accounts so much. I’m a big fan of locking in today’s tax rates.) The last time Congress raised the retirement age was in 1983. They phased it in gradually over 33 years, increasing it by two months per birth year. If they do it again, it would likely be a similar slow rollout, giving people decades to plan. Here’s what you need to know: If you’re currently in your 40s or younger, plan as if Social Security will give you less than you expect — or that you’ll need to work longer to get full benefits. If you’re in your 50s or 60s, you’re more likely to be grandfathered in under current rules, since any changes will likely be phased in gradually. Either way, this is why building other income streams matters. One more thing: regardless of when you plan to claim Social Security, apply for Medicare within three months of turning 65. If you don’t, you could face higher premiums for life. The penalties for delaying Medicare are permanent and unforgiving. So where does all this leave us? Between Fed rate cuts that are priced in before they happen, a softening (but still strong) job market, and potential Social Security changes ahead, the economy is in a weird in-between phase. It’s a recipe for being cautiously optimistic. And that’s the opposite of how most people say they feel. According to the University of Michigan, consumers say they’re pessimistic — consumer sentiment in September fell to its lowest level since May — but they’re still spending at increasing rates. Consumer spending rose by 0.6 percent in August, following increases of 0.5 percent in both July and June. That disconnect between how people feel and how people act is one of the more fascinating economic stories right now. My philosophy? Focus on what I can control: building income streams, staying informed, and making moves when opportunities appear.
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Companies with 500+ employees actually added 33,000 jobs
Companies with 250-499 employees lost 9,000 jobs
