Powell: Don’t Expect the Fed to Hurry on Rate Reductions

Eager investors and property owners who have grown tired of high refinancing rates are happy to hear of the Federal Reserve’s rate cut. But what would come next/? When might they get more? From what Chair Jerome Powell said in a speech on Monday at the National Association for Business Economics Annual Meeting in Nashville, Tennessee, restraint of hopes might be a good decision.

CME Group’s FedWatch and its monitoring of the 30-day fed funds futures price market suggests a 50% chance after the Federal Open Market Group’s December meeting, the federal funds rate down to 400 to 425 basis points. Such a drop would mean a total of 150 basis points cut from where things stood before September.

Granted, the Fed did make the first cut since 2020 and at a 50-basis-point level — not the three-quarter point jumps from the interest scale up to fight inflation, but still significant. However, the wisdom of crowds goes oft astray, to torment the memory of Robert Burns. Similar market predictions assumed that rate cuts were supposed to start in March, then April, then June, then July.

The Fed has been vocally cautious about getting to a new normal, with chair Jerome Powell Having said it would be unlikely that the old days of extremely low interest rates prevalent since about 2010, and then ramped up during the pandemic, would return.

The Fed is not monolithic. Some officials at the central bank have hinted at the need for more aggressive rate cuts in the coming months. However, the recent speech by Powell suggests that patience will be a necessary tool for anyone in CRE.

The formal speech itself was what one might have expected. Powell said that the “economy is strong overall” and that the Fed made “significant progress” toward the dual mandate of stable prices and maximum employment. The labor market is “solid” even though it has “cooled” over the last 12 months and “broad-based” deflation with a “sustained return to 2 percent.”

However, the more interesting remarks came in the Q&A following, as Bloomberg reported. “This is not a committee that feels like it’s in a hurry to cut rates quickly,” Powell said. “Ultimately, we will be guided by the incoming data. And if the economy slows more than we expect, then we can cut faster. If it slows less than we expect, we can cut slower.”

Setting hopes on continued rapid rate cuts might find satisfaction. Then again it might not. The immediate future of finance is not certain because, as Powell tacitly admitted, neither is the immediate future of the economy.