Hello, YieldAlley readers! In this issue:

📈 Apple and Nvidia are showing how China failures are no barrier to unparalleled stock market success (Sherwood)

🧠 The Ultimate Guide to Long-Term Investing (Deutsche Bank)

🌯 This burrito is everything you need to know about America’s economy (CNN)

🏝️ Her 401(k) Contributions Vanished—and Her Company Had No Answers (WSJ)

☢️ The Risky Movement to Make America Nuclear Again (Bloomberg)

The Federal Reserve cut interest rates by 25 basis points in October, bringing the federal funds rate to 3.75%-4.00%. But unlike previous meetings where the path forward seemed clear, Fed Chair Jerome Powell made it explicit: don't assume anything about December.

The cut itself was straightforward enough. The Fed sees a weakening job market and believes inflation, while still elevated at 3%, is manageable enough to justify easing policy. They're particularly focused on "nontariff inflation," which Powell noted is "not too far from 2% now."

But here's what matters more than the cut itself: the Fed is deeply divided. Powell acknowledged this unusually directly, noting "when you're this divided it's difficult to provide guidance." The committee had dissents in both directions—one member wanted a 50 basis point cut, another wanted no cut at all.

The Fed also announced they'll stop quantitative tightening starting December 1, ending the process of shrinking their balance sheet that's been running since 2022.

If you've been enjoying the high yields on savings accounts, money market funds, and short-term Treasuries, the party is winding down, but not ending abruptly.

Your cash accounts will see lower rates, but gradually. Banks and money market funds don't cut rates as quickly as the Fed does. Most high-yield savings accounts are still paying 4.5%-5%, and they'll take time to drift lower. Money market funds, which more directly track Fed policy, will adjust faster but still lag by several weeks.

The bigger question is December and beyond. Powell essentially told markets not to price in automatic rate cuts. With two committee members wanting no cut at all and stronger economic growth data emerging, we could see the Fed pause. Or they might cut again. Even Powell admits he doesn't know yet.

If you're heavily allocated to cash:

Stop waiting for rates to go higher. With the Fed now 150 basis points below where they were a year ago and clearly in cutting mode (even if the pace is uncertain), cash yields have likely peaked. The question isn't whether rates will go higher, it's how fast they'll decline.

Consider locking in today's rates where it makes sense. October's 4.02% I-Bond rate with a 1.10% fixed component (if you bought before October 28) starts looking more attractive when you realize cash rates are heading toward 3% territory over the next year.

For your emergency fund:

Keep it in cash. Three to six months of expenses should stay highly liquid regardless of what the Fed does. High-yield savings accounts remain the right home for this money, even as rates decline.

For everything beyond emergency savings:

This is where you need to think harder. If you've been holding extra cash waiting for higher rates or better entry points in other investments, that strategy is running out of runway. Consider:

The wild card: Future Fed moves

Here's what makes this tricky. If the labor market weakens significantly (which the Fed clearly fears), they could cut more aggressively than markets expect. That would push cash yields down to 3% or lower relatively quickly.

But if growth remains resilient (which the Fed is also seeing), they might pause for several months. In that scenario, your cash would earn decent returns a bit longer.

The Fed doesn't know which scenario plays out. That's Powell's whole point about not making December a "foregone conclusion."

Rather than trying to time the Fed perfectly, think about tranches:

The government shutdown complicates economic data, making the Fed's job (and yours) harder. But that uncertainty itself is an argument against waiting. When visibility is low, locking in known returns becomes more attractive.

The Fed cut rates and signaled they might not cut in December. Your cash will earn less over time, but you have months, not weeks, to adjust your strategy. The key isn't predicting exactly what the Fed does next—even they don't know. The key is recognizing that the direction is clear even if the pace isn't.

Cash has been a great place to be for the past 18 months. But strategies that work in a rising rate environment need adjustment when rates start falling.

Government Money Market Funds (7-Day Yields)

Brokered CD Rates (6-Month Rate)

ETFs (30-Day Yields)

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