FOMC Cut Rates Like Everyone Thought They Would
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FOMC Cut Rates Like Everyone Thought They Would ✅
The market climbed Wednesday right after the FOMC cut interest rates 25 basis points. Financial stocks were happy, leading sectors on the S&P 500 higher, as the promise of lower mortgage rates sent refinancing applications up 60% in the past week.
The FOMC cut rates by an expected 25 bps on Wednesday, in an 11-1 vote. Newly appointed Trump ally Stephen Miran wanted a 50 bps cut, and is likely the sole decenter in the forward-looking dot plot that called for a target rate below 3% by the end of the year.
A cut together version of the Fed Dot Plot shows one member stood out with an outsized attitude to cut
Fed Chair Jerome Powell, speaking at 2:30pm ET, said it was a risk management cut. He was asked, in layman’s terms, if prices are rising, and the Fed expects them to keep rising, why are they cutting rates?
The Fed unanimously cut because the labor market has deteriorated, he said, and it’s the greater of two evils to focus on. Compared to June, when seven voting members saw no rate cuts for the rest of the year, opinions on the path forward have changed drastically.
The projection now sees a majority of members see two more rate cuts this year, or 50 bps, with two meetings to go in October and December. That’s a new average target of 3.50-3.75%. Compared to June, September's median estimates from voting members on where GDP, inflation, and target rates will be in Jan ‘25, ‘26, and ‘27 had not changed much.
Forward estimates have not changed much, though the FOMC sees higher growth and higher prices next year.
The USD index hit its lowest since 2022, when rate hikes began. That’s the Trump Admin plan: make dollars cheaper so financing houses, factories, and trade is way easier. The problem is it might be short cited. The majority of fund managers surveyed by Bank of America expect inflation to climb big time, and nearly none expect the Fed to do anything about it.
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This rate cut environment may increase the value of real estate, particularly multi-family properties, by lowering capitalization rates—as investors often accept lower yields when benchmark rates fall, leading to higher property valuations.
Additionally, reduced borrowing costs can make mortgages more affordable, drawing more buyers and investors into the market, boosting demand, and potentially driving up prices.
This could heat up the market by injecting momentum, increasing transaction volumes, and encouraging competition among buyers, especially in the housing sector where rate-sensitive homebuilders and buyers respond quickly.
For multi-family owners like you, this might translate to improved refinancing opportunities, stronger rental demand (as homebuying becomes relatively more expensive), and overall enhanced portfolio performance—though effects may unfold gradually as mortgage rates trend lower over the coming months.
Overall, these cuts signal a pivot toward looser monetary policy amid global economic headwinds, including trade uncertainties. While immediate impacts on mortgage rates may be gradual (with 30-year fixed rates already dropping to around 6.13% in anticipation), this environment favors real estate investors by potentially increasing property demand and reducing debt service costs.
If you have questions or want to discuss how this affects your portfolio, feel free to reply.
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Disclaimer: This information is provided for general guidance and does not constitute legal advice. Please consult with a qualified accountant, CPA and attorney.