- The Federal Reserve is likely to start lowering interest rates, as inflation moves closer to the 2% target and unemployment rises.
- Mortgage rates, indirectly influenced by the Fed’s actions, are expected to slide over time, relieving the sluggish housing market.
- Experts anticipate gradual improvements in housing inventory and market activity as rate cuts take effect.
Federal Reserve Chair Jerome Powell signaled on Friday that long-awaited interest rate cuts could begin as early as September, offering potential relief to a housing market hampered by high mortgage rates and limited inventory, as reported in The Real Deal.
Relief On The Horizon
Speaking at the Jackson Hole Economic Symposium, Powell emphasized that while the timing and pace of rate cuts will depend on evolving economic data, the Fed is prepared to make adjustments as inflation cools and unemployment ticks upward.
Powell’s remarks come after weeks of speculation surrounding the Fed’s next move. With inflation approaching the Fed’s 2% target and unemployment reaching 4.3%—a level higher than anticipated—Powell acknowledged that the time for policy adjustment is near.
He attributed the rise in unemployment to a surge in workforce participation and a slowdown in hiring, rather than layoffs, noting, “The cooling in labor market conditions is unmistakable. We do not seek or welcome further cooling.”
Housing Market
The Fed’s rate hikes, which began in 2022 to combat inflation, have had a ripple effect on mortgage rates, contributing to a slowdown in home sales.
Many homeowners have held on to low pandemic-era mortgage rates, while high inflation has prevented the Fed from reducing rates sooner.
The latest jobs report, however, has led to mortgage rates dipping to a 15-month low, signaling that rate cuts may provide the housing market with much-needed momentum.
Cautious Optimism
While the prospect of lower interest rates is encouraging, real estate experts urge caution. Chen Zhao, an economist at Redfin, notes that although a rate reduction is a positive development, it may take months before inventory levels recover and the housing market sees substantial improvements.
Nevertheless, the expected rate cuts could lay the groundwork for a gradual recovery.
The Federal Reserve’s next meeting is scheduled for September 18, where the first in a series of rate cuts is anticipated. Mortgage Bankers Association chief economist Mike Fratantoni echoed Powell’s sentiments, predicting a gradual decline in mortgage rates toward 6% over the next year.
