The September Surprise: Fed Infighting and New Whispers of Rate Cuts

This week, Fed Chair, Jerome Powell, held a news conference to provide updates on the latest decision to leave the Fed rate unchanged for the fifth straight time. Not exactly breaking headlines, right? Although his statements about what September might bring—a mishmash of "not promising anything, and not ruling anything out"—are mind-numbingly predictable, the two Fed Governors with historically dissenting 'No' votes against Powell were not.

"Setting interest rates is sometimes more art than science, especially when the economy keeps defying predictions—a reality the Federal Reserve confronted head-on Wednesday." - Nick Timiraos, The Wall Street Journal

Another Norm Broken

The consensus model has traditionally been embraced by the Central Bank's Federal Open Market Committee, or FOMC - the committee tasked with setting the Fed rate. July's meeting marks the first time in 32 years that this did not happen, and it's caused some eyebrow-raising amongst those "in the know" on Wall Street.

The two opposition votes voiced their concern that the current wait-and-see approach, Powell's strategy since the administration change and subsequent economic policy shifts (particularly around tariffs), has run its course. They argue that by not cutting the Fed rate, the economy could worsen. They also contend that the data the Fed Chair is basing his decisions on is antiquated and doesn't accurately reflect the lived economic experience of those on Main Street.

And they aren't the only ones who are worried about this slow-paced approach. The Fed is holding off cuts due to what appears to be an overly robust and healthy economy. However, experts like Neil Dutta, head of economic research at Renaissance Macro Research, told The Wall Street Journal, “The unemployment rate being at 4.1% gives you a false sense of what’s actually going on in the job market.” As WSJ writer Nick Timiraos puts it, "The low and stable unemployment rate that Powell touted as a sign of economic stability is masking gradual labor market deterioration that could accelerate quickly."

How Does This Affect Real Estate?

Those of us in the real estate industry have been searching for the tiniest bread crumbs - any hopeful hint of rate cuts for the past three years. Should we abandon the common belief that interest rates probably won't make a significant shift (i.e., dipping below 6%) unitil end of 2026, just because a few memeber of a committee (who are also considered possible replacements for Powell once his term is up next year) bucked against the Fed Chair?

Probably not.

However, with Powell leaving Wednesday's news conference commenting on the committee's time together, saying it was "one of the better meetings," there seems to be a small ray of hope that Jerome the Unchangeable might be open to some baby steps afterall.

Fingers Crossed!