Let’s start the conversation by saying I consider myself to be a humanitarian and one might even say a batrachophile – that is, someone who loves frogs, of course. (Important disclaimer: no frogs were harmed—or boiled—in the making of this blog.)

So what do frogs have to do with investing? More than you think.

The Fed Is Turning Down the Heat

The Federal Reserve meets on Wednesday and is widely expected to trim the fed funds rate by a modest ¼%. Not exactly earth-shattering news—it’s been telegraphed for weeks.

Source: https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html?redirect=/trading/interest-rates/countdown-to-fomc.html  *As of 9/9/25

The expected rate cut would, however, be the first of 2025 as the Fed navigates the challenges of how tariffs, inflation, and softening employment impact the economy.

For investors sitting in money market funds and short-term CDs, the slow decline of a ¼% rate cut could feel a lot like—well—the frog in the warming pot.

The Boiling Frog Lesson

A (rather grim) fable once told the story that if you toss a frog into boiling water, it hops out immediately. Smart frog. But place it in warm water and slowly turn up the heat, and the poor creature just sits there until – well, you know the rest.

Investors might be thinking the Fed’s expected ¼% rate cut this week isn’t a big deal as it relates to their income stream from cash-like investments, and they’d be right. Similarly, the frogs didn’t think it was a big deal when the heat in the pot increased by a few degrees. They were right too, at least for awhile.

Is the Fed’s ¼ rate decrease going to kill client’s income stream? No – and maybe that’s the problem.

But we look at our Fed crystal ball, the market is predicting there’s a 75% chance the fed funds rate will fall by 1% or more over the next 9 months. And a 25% chance it falls by 1.50%.

Source: https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html?redirect=/trading/interest-rates/countdown-to-fomc.html  *As of 9/9/25

That’s the danger facing investors today. A single ¼% rate cut doesn’t sting much. But stack up a few cuts over the next nine months, and suddenly your cash yields are down 25–33%. For retirees or anyone depending on that income to cover living expenses, that’s no minor discomfort – it’s financial scalding.

How We Got Here

For the past couple of years, parking excess cash in money markets and short-term CDs has felt like a no-brainer. Yields were competitive with longer-term bonds, without the hassle of locking up money for 5 or 10 years.

But now the Fed has the difficult job of reaching for the thermostat. If rates fall, that short-term yield advantage evaporates fast. And unlike our frog friends, investors can still jump before it’s too late.

What Should Investors Do?

Hockey legend Wayne Gretzky once said, “I skate to where the puck is going to be, not where it’s been.” Investors should do the same when it comes to their investment income.

Where’s the puck going? Likely toward lower short-term yields. Which means it may be time to shift some cash from money markets into intermediate-term bonds or CDs, many still paying around 5%.

(Our 2020 selves would be doing backflips for this type of income stream when 10-year treasury yields bottomed below 0%.)

Why? Three reasons:

1. Reliable income – Longer bonds lock in yields instead of leaving you at the Fed’s mercy.
2. Market protection – If the economy slows, bond yields could fall further, making today’s locked-in income more valuable.
3. Diversification – When stocks wobble, intermediate and long-term bonds tend to hold up better than short-term notes.

Don’t Be the Frog

The real story this week isn’t the Fed’s quarter-point cut. It’s the likelihood that a series of small cuts could slowly boil away investors’ income streams.

Ask yourself: In nine months, could you live with your income having fallen by 30%? Where would you come up with the income to bridge your new income gap?

The phrase “boiling frog syndrome” is sometimes used to describe the human tendency to ignore negative trends until they become critical. Asking these questions now can help you avoid this behavioral trap.

If you don’t like where the Fed’s interest rate train is headed, now’s the time to hop off. Otherwise, you may find yourself stuck in the pot – wondering too late why the water feels so hot.

Castle Quote: “You can’t predict. You can prepare.” – Howard Marks