Yes, you read that right. The growing chatter around potential Federal Reserve rate cuts is making me anxious. If I were a trader today, I would focus intently on price dips below short-term moving averages, preparing for what could evolve into a significant sell-off.

But before delving into my reasoning, let’s rewind to last Friday.

Powell signaled a possible rate cut in September

Fed chair Jerome Powell seemed to support rate cuts in his speech at Friday’s Jackson Hole conference. The pivotal phrase from Powell’s address was, “with policy in restrictive territory, the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance.” Even Powell recognized that “downside risks to employment are rising,” opening the door to rate cuts in September—yet without any firm commitment. These remarks heightened expectations for Fed cuts, causing markets, including Bitcoin and Ether, to rise sharply.

Such expected cuts are being considered amid unprecedented fiscal spending, inflation in asset valuations, a record M2 money supply not only in the U.S. but globally, and minimal volatility across assets. This scenario raises the question: how significantly will reduced borrowing costs impact the economy?

Newsletter service LondonCryptoClub provides this perspective: “Incremental rate cuts will influence markets, but there are far greater forces at work driving this bull market. We are experiencing widespread monetary easing and an increase in stimulus, with global M2 rising dramatically. The U.S. continues to run wartime-level deficits exceeding 6%, and other major economies are also intensifying their fiscal policies. The U.S. Treasury is also engaged in a strategy often dubbed ’treasury QE,’ aimed at artificially suppressing yields along the curve by front-loading debt issuance via T-bills.”

In simpler terms, the Treasury is ramping up debt issues in short maturities to bolster demand and boost supply of short-term securities, keeping short-term interest rates subdued. This method mirrors a version of “Treasury quantitative easing,” where instead of the Fed directly purchasing bonds to inject liquidity, the Treasury’s issuance strategy supports low yields in short-duration debt.

But the lingering question remains: how much stimulus is excessive?

Excessive Stimulus: The U.S. Economy on Steroids

I cannot help but picture the U.S. economy, alongside many developed nations, as bodybuilders relentlessly employing multiple stimulants to enhance their performance.

This analogy has been utilized by economists repeatedly: fiscal spending and monetary policies act as the steroid equivalent of macroeconomics—emergency measures to rejuvenate the economy. They artificially enhance the economy’s performance but carry long-lasting, harmful side effects.

Jim Bianco referred to rate cuts as a “steroid shot” for the economy, while JPMorgan’s David Kelly labelled the rapid recovery post-2020 COVID crash as “a steroid-induced recovery,” destined to slow once fiscal facilitates wear off.

However, the government has never truly ceased administering these stimulants. According to the Congressional Budget Office and the Peter G. Peterson Foundation, federal spending as a percentage of GDP remains above pre-pandemic levels of around 23-25%, with predictions indicating persistent elevated totals in the coming years.

Some have termed this the Biden-era fiscal policy on steroids, a trend that continued equally robustly into the Trump administration with massive tax cuts anticipated to exacerbate deficits further.

In summary: Uncle Sam has never actually come off those stimulants. He briefly curtailed monetary policies in 2022-23 but quickly ramped up fiscal measures—akin to a bodybuilder substituting testosterone for a potent anabolic agent.

And now? The Fed seems set to inject adrenaline back into the setup through rate cuts.

Facing Diminishing Returns?

Sustained use of performance-enhancing drugs has repercussions. Just like in medical treatments and bodybuilding, prolonged steroid usage eventually leads to resistance—there is a certain point beyond which the effectiveness declines while side effects increase.

The body’s hormonal processes adapt by downregulating androgen receptors or altering how hormones are metabolized. This can lead to dire consequences such as organ failures and fatalities.

The biological feedback mechanisms related to steroid resistance draw a clear parallel in economics: unrestrained fiscal or monetary stimulus leads to diminishing returns, as the law of diminishing marginal utility kicks in, resulting in a point of saturation where negative side effects dominate while positive effects vanish. The beneficial effects—economic growth—plateau, while the harms—from inflated asset bubbles to skyrocketing debt—become increasingly concerning.

This presents a distinct risk for the U.S. economy posed by ongoing stimulus strategies. Unlike disciplined athletes who cycle steroids to uphold efficacy and health, the U.S. economy has been under some form of steroid administration for five continuous years—never pausing, never resetting.

When does diminishing efficiency arise? When does the risk stem from excessive stimulus outweigh any advantages? No one has the answers.

Yet the speculation surrounding Fed rate cuts amidst freely flowing fiscal stimulus and asset values at unprecedented highs seems akin to overstraining a bodybuilder with an artificial cocktail, raising the risk of harm rather than aid.

This leads me to feel apprehensive—worried that financial stimulants may gradually diminish their potency, culminating in a disastrous outcome.