Today we will be talking about two important things. First is the Fed’s decision to leave the key interest rate steady in their January 2025 meeting. The second is why the short-run market movements shouldn’t scare you.
The Federal Reserve decided to keep its key interest rate steady between 4.25% and 4.5%, after cutting it three times since September 2024.
In its post-meeting statement, the Fed gave a few hints about why it decided to keep rates steady.
It sounded more positive about the job market. It noted that unemployment has stayed low and the overall labor market remains strong.
However, it removed a key phrase from December’s statement that suggested inflation was making clear progress toward the Fed’s 2% goal.
Instead, the Fed acknowledged that inflation is still somewhat high and above their long-term target of 2%
A strong job market and sticky inflation mean the Fed has less reason to cut rates as of now.
The statement also reiterated that the economy is still growing at a solid pace.
Overall markets reacted negatively to it and after a somewhat of a recovery yesterday. Overall markets are having a bad day again as we can see from the charts. All the leading indices are showing a downward trend this week.
But as an economist, I want to tell you that these short-term market fluctuations shouldn’t scare you as an investor, and here’s why:
- Short-Term Panic Doesn’t Equal Long-Term Trouble. Stock prices go up and down all the time. Two days ago, investors got nervous about AI competition. But that doesn’t mean companies like Nvidia or Microsoft are suddenly bad investments. A single bad day (or even a bad week) doesn’t decide the future of a company or the entire stock market.
- AI is Still the Future. Yes, a Chinese company released a cheaper AI tool, but AI is a massive industry with room for many winners. U.S. companies still have great technology, resources, and strong customer bases.
Competition is normal in business—think of how Apple and Samsung both make great phones. It doesn’t mean one will disappear overnight. - Smart Investors Think Long-Term. If you invest for the long run (like years, not days), these short-term drops don’t matter much. They can even be opportunities to buy good stocks at lower prices. The best investors don’t panic when the market moves—they stay patient and focus on long-term growth.
People who get affected by these daily movements are the day-traders, or people who bet on options, not investors. However, as an investor of a diversified portfolio for the long term, you should be fine.
So, instead of worrying, use this as a learning moment. The market is unpredictable, but history shows that patience and smart investing win in the long run!
And to prove this point let’s look at the overall trend in these charts in the last 10 years
Even with the short-term dips for various reasons, you are much better off investing in a broad-based index fund than trying to time the market.
This is what seasoned investor Warren Buffet also suggests.
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