Fed Second Guessing Rates Cuts?

Last Thursday, while addressing business leaders in Dallas, Chairman Powell stated, “The economy is not sending any signals that we need to be in a hurry to lower rates.” This is a very different tone than what he broadcast less than two months ago when he announced the first rate cut. Sooooooo, what the heck, man? Perhaps in 2025, the anticipated aggressive rate cutting will be delayed? Or suspended?!? Gasp!

What changed?

Just like Powell said, the economy has been sustaining pretty well. The unemployment rate has flattened out in recent months and remains low by historical standards at 4%. And with the recent consumer price index data release it also showed a slight uptick in both consumer and producer prices. All of this is pulling further away from the Fed 2% inflation mandate. Hence, it's not a surprise to hear the brakes screech from the Fed as a resurge of inflation would be rough.

Real Estate in 2025?

If the Fed walks back on its expected rate cut, we could be looking at a repetition of 2024. This means higher rates and low inventory producing a gradual increase in home prices. After all, 2024 was still competitive for homebuyers, even with less than ideal conditions. On the contrary, if the Fed commits to aggressive rates cut, it could be a replay of 2022 where buyers swarmed the market and sellers were motivated to upgrade, downsize, relocate, etc., which provides more inventory to fulfill the demand (think "feeding frenzy"). While sales prices could break records in this scenario, the upside is consumers can enjoy the lower rates for the first time in a while.

Regardless of which direction the Fed will take, my best advice is to buy within your means. In addition, work with an experienced and knowledgeable realtor and lender so you can get the results you're looking for! If you're a seller, you're probably good in either scenario, if you're prepping and marketing the home correctly, you're gonna make some big bucks. Don't mess it up!