Impact of Federal Reserve Rate Cuts on Consumer Spending and Growth Stocks

Historical Impact of Rate Cuts on Consumer Spending

Historical rate cuts have led to mixed impacts on consumer spending. While some consumers exhibit resilience despite elevated prices, others show soft trends in discretionary spending, influenced by economic factors and interest rate expectations. Overall, consumer behavior reflects a complex interplay between rate changes and spending patterns.

"So we're now 6.5%, 6.4% ish. We've rates have come down 50 odd basis points the last several weeks in expectation of this cut." --- (HD, conference, 2024/09/04)

"This normalization, combined with the cumulative impact of higher prices on consumer budgets, is resulting in continued soft trends in discretionary categories, most notably in Home and Hardlines." --- (TGT, earning call, 2025/Q1)

"In addition, changes in fuel, utility, and food costs, interest rates, and economic outlook may impact customer demand and our ability to forecast consumer spending patterns." --- (AMZN, sec filing, 2024/Q2)

"And you mentioned the lockup effect, just simply don't know. Is it a factor of folks waiting for rates to decline or is there a mindset shift that becomes accustomed to a higher rate environment and says this is normal, I have to upsize, I have to improve in place." --- (HD, conference, 2024/04/04)

"Consumers remain surprisingly resilient despite a challenging backdrop of significantly elevated prices compared to just a few years ago." --- (TGT, earning call, 2025/Q1)

Growth Stocks' Performance and Valuations During Rate Cuts

During Federal Reserve rate cuts, growth stocks like Netflix and Tesla are focusing on sustaining revenue growth and investing in future opportunities. Despite economic pressures, Netflix aims for consistent revenue growth, indicating resilience in performance and valuations, while Tesla continues to prioritize investments despite broader market pullbacks.

"And that's really what it is. We're still going to have the same financial policies and principles in terms of prioritizing profitable growth by reinvesting in our core business, maintaining a healthy balance sheet with ample liquidity and returning excess cash beyond several billion dollars on the balance sheet of minimum cash and anything that we use for selective M&A to return to shareholders through share repurchase." --- (NFLX, earning call, 2024/Q1)

"Q1 2024 Shareholder Update → https://t.co/fvAaI97WoA — Highlights While many are pulling back on their investments in EVs, we are investing in future growth." --- (TSLA, Twitter update, 2024/04/23)

"So we got it to about 13% to 15% revenue growth for the year. We want to continue to sustain that healthy revenue growth beyond this year." --- (NFLX, conference, 2024/05/15)

"And at the high end of our revenue forecast, our growth in the second half is consistent with our growth in the first half, even with those tougher comps." --- (NFLX, earning call, 2024/Q1)

Consumer Sentiment Trends Following Rate Cuts

Consumer sentiment has softened significantly, as noted by both Starbucks and McDonald's, with traffic declines among occasional customers and low sentiment in major markets. Companies are responding cautiously, focusing on affordability and pricing strategies to adapt to this challenging environment.

"Starbucks results for the third quarter of fiscal 2024 reflect progress against our action plans to drive traffic to our stores and realized in-store and out-of-store efficiencies, which helped partially offset the impact of continued broader headwinds in a challenging global operating environment, including softening consumer sentiment, a pervasive inflationary environment, and disruptions due to multiple international conflicts." --- (SBUX, sec filing, 2024/Q3)

"And I would point out consumer sentiment in most of our major markets remains low." --- (MCD, earning call, 2024/Q2)

"Consistent with Q1, the traffic decline was pronounced among more occasional customers with a more cautious consumer environment as a backdrop, and also included an estimated 3% adverse impact from extreme weather, including some store closures." --- (SBUX, earning call, 2024/Q2)

"And I think we certainly are going to be prudent and thoughtful about any further price increases that we're looking at for the rest of 2024 on that backdrop and keep working on the opportunity that we've talked about a fair bit already on the affordability and getting that in place to kind of address the consumer need." --- (MCD, earning call, 2024/Q1)

"Revenue growth over the prior year was driven by 8% net new company-operated store growth, partially offset by a 3% decline in comparable store sales from a 5% decrease in transactions and a 2% increase in average ticket as we continue to navigate through a value-driven consumer environment.US led the average ticket increase of 4%, driven by pricing and multi-beverage orders." --- (SBUX, earning call, 2024/Q2)

Broader Economic Implications of Rate Cuts

Federal Reserve rate cuts are anticipated to influence economic scenarios significantly, with global markets closely monitoring their timing and implications. Concerns about inflation and the dollar's reserve status highlight potential risks, while current economic momentum suggests mixed expectations regarding the necessity and impact of these cuts.

"And the other thing I want to point out, because all of these questions about interest rates and yield curves and NII and credit losses, it's one thing to project it today based on what -- not what we think in economic scenarios, but the generally accepted economic scenario, which is the generally accepted rate cuts of the Fed." --- (JPM, earning call, 2024/Q1)

"Additionally, markets were focused on the potential timing and amount of policy interest rate cuts by central banks globally, as well as the potential outcomes of national elections." --- (GS, sec filing, 2024/Q2)

"And then it won't be the quantity. It'll be whether in any way inflation would get let loose in a way that that really threatened the whole world economic situation and there really isn't any alternative to the dollar as a reserve currency. And you get a lot of people who give you a lot of speeches on that, but that really is the answer." --- (BRK.B, event transcript, 2024/05/04)

"I wanted to maybe dig in on some of the some more recent trends in the U. S. So the Fed is on the verge of cutting rates." --- (V, conference, 2024/09/11)

"And when we think about higher for longer, maybe the economy is too strong, so we don't get any rate cuts, are you seeing that when you talk to your customers and the feedback you are getting from your bankers where the momentum is picking up?" --- (JPM, earning call, 2024/Q1)

Future Outlook for Consumer Spending with Rate Cuts

Rate cuts could enhance consumer spending by enabling retailers like Walmart and Amazon to invest in low prices and customer experience. However, current inflationary pressures have led to softness in discretionary spending, indicating that while the base of consumer spending is healthy, caution remains prevalent among consumers.

"But then economically, if they're driving a benefit for us as well, it allows us to then invest those funds in areas that also will have benefit for the customer experience that people have become like so like shopping with Walmart is all about everyday low prices and as long as we're reinforcing that behavior with our customers and that position in their mind, then we think we're set up for the future and these businesses are critical to enabling that." --- (WMT, conference, 2024/09/11)

"We believe that offering low prices to our customers is fundamental to our future success, and one way we offer lower prices is through shipping offers." --- (AMZN, sec filing, 2024/Q2)

"And so I'd say kind of the base of customer spending is very healthy. When you get to larger ticket projects and for us, when you're thinking about a project associated with your home, the larger they get, the more likely they are to be debt financed." --- (HD, conference, 2024/04/04)

"And that really talks to a really strong health for the future. We're getting people early in their lives and we see them continuing to be sticky. The reason that it's working is we're focusing on all parts of our value proposition." --- (WMT, earning call, 2025/Q2)

"So Walmart U. S. Continues to see strong top line results in traffic. However, discretionary has remained relatively soft in recent quarters as consumers manage budgets in the face of multiple quarters of inflationary pressures and our protection is still lapping pandemic buying." --- (WMT, conference, 2024/06/11)

Rate Cuts and Inflation: A Consumer Perspective

Rate cuts are prompting companies to focus on providing value to consumers, especially in light of persistent inflation. Executives emphasize the importance of retaining consumers and addressing affordability, particularly for low-income households, as spending behaviors shift in response to economic pressures.

"So, yes, there is some value to be given back to consumers after three or four years of a lot of inflation." --- (PEP, earning call, 2024/Q2)

"And as we sit here today, I'd love to hear your perspective on the consumer, especially the low income consumer as we're really seeing some softening in some of the macro data." --- (PG, conference, 2024/05/14)

"James Quincey: Yes, so we as from a strategy perspective, have taken the approach over the last number of years, it cannot say even longer, that it's critically important, particularly when times get tougher to try and keep as many consumers in the franchise as possible, rather than trying to re-recruit them at some later stage." --- (KO, earning call, 2024/Q2)

"Firstly, the company's emphasis on value and affordability has resonated with consumers in an inflationary environment." --- (WMT, press release, 2024/08/21)

"Your line is open. Robert Moskow: Hi, thanks. A couple of questions. One is, I was hoping you'd give a little more color on the energy drinks category, growth has slowed dramatically in the U.S. And just wanted to get your perspective and ask like, do you think that the consumer there are making a value decision as well?" --- (PEP, earning call, 2024/Q2)