Will the Fed start cutting rates soon? 😬

If the answer was a relationship status on facebook, it would be "it's complicated."

Let me explain...

Eight times a year the Fed gets together and decides what they'll do with interest rates.

They're supposed to make the decision based on their dual mandate (2 main priorities):

1. Price stability - aka keep inflation at 2%/year
2. Maximum employment - aka keep unemployment relatively low

It's worth noting that the 2% target is just a made up goal they copied from New Zealand.

Also, they can't actually define maximum employment so that's a moving target.

The dual mandate always makes me think of the Pirate's Code in Pirates of the Caribbean: "it's more like guidelines than rules."

Because the guidelines are flexible, it's much more of a guessing game on what the Fed will do each meeting.

Plus, there are a number of competing interests that can influence the Fed's decisions regardless of their dual mandate (market expectations, politicians, large corporations, etc.).

Finally, we are in a situation where prices and employment work against each other.

If the Fed cuts rates focusing on the job market, it's likely to cause a flare up in inflation. If they keep rates the same or raise them to slow down inflation, the job market will suffer and unemployment will rise.

The odds the Fed cuts rates next meeting 📉

Let's take a look at where we stand on the two focuses for the economy:

Jerome Powell (head of the Fed) and the gang aren't in a great spot.

They've got pressure on both prices and the job market and will have to pick their poison. 

Right now, they are saying that inflation is rising from tariffs and that it's more likely a one-time thing. 

I feel like I've heard that before...

Because of this, the market expects they'll prioritize the job market (and satisfy political pressure) and cut rates 0.25% at the next meeting:

This doesn't mean it's a lock to get a cut, though.

The Fed has said it will watch the new data that comes out over the next two months before making any decisions.

But, it's a positive sign for those hoping for lower interest rates.

The bottom line 💡

The real question is not necessarily if the Fed will cut rates or not, but rather will mortgage rates go down?

It's weird to think the two aren't the same thing, but just think back to when the Fed started cutting rates last September.

Everyone was waiting for the cuts and when they finally arrived, mortgage rates went UP!

Part of the journey is to figure out what's going on. The other part is to know what to do based on that information.

There are some surprising challenges that you and your clients need to know when it comes to the Fed cutting rates and how it will impact the real estate market.

Normally, I'd give several bullet points on how to navigate this situation, but that's something I'm going to keep for my Market Insider coaching members at our private MarketPulse 360. 

If you're in Northeast Florida, want to be there, and invest in becoming a Market Insider, there will be 10 spots available in the membership starting August 13th at 8AM. They'll go quick, so make sure to check it out and add you're name to the waitlist.