Fed Cuts Rates .25% in the Face of Global Uncertainty: It’s a Good Time to Buy
Amidst a global economic slowdown, the Federal Reserve voted to reduce interest rates by .25% on Wednesday; this is the second time in two months that they have done so. This vote was a notable because of the wide range of opinions held by the 10 officials who voted for the most recent reduction. Two voters preferred to keep rates where they were, and a third voter preferred a .5% cut. The remaining 7 voted to reduce the rate to between 1.75% and 2%; Jerome Powell noted that rates could be cut even further if the economy continues on its present trajectory (some may say Mr. Powell is bowing to President Trump’s pressure, but others argue that it’s a necessary step to keep the U.S. economy afloat despite the myriad of factors working against that outcome).
Many people in the know suspect that rates will drop even further over the next year for two reasons: (1) the global economy’s growth has been slowing down significantly; (2) uncertain trade policies; and “muted inflation.” Many of these concerns are directly connected to the U.S.-China trade war (most people agree rate cuts are unlikely if the dispute is resolved in the near future). The bottom line is that most people aren’t entirely sure what will happen, only what can happen under a number of scenarios – each of which seem to be equally plausible.
The problem is made much better by looking at available economic data, as it sends mixed messages. While consumer spending has remained strong, manufacturing has gotten weaker; this is made even more confounding upon the realization that profit growth and employment figures aren’t nearly as strong as we once believed.
The bottom line is that as long as the global, and United States’, economy are unstable the Fed appears prepared to step in with rate cuts among other things. As noted in other articles, mortgage rates and interest rates are not the same thing but are closely correlated in terms of movement. What this means is that when the Fed cuts rates, buying a house become a better option (lower mortgage rates mean you pay less over the life of a home loan). While we certainly shouldn’t root for more instability, as global stability is good for everyone, that doesn’t mean we shouldn’t capitalize on things beyond our control (in fact, one might argue that purchasing homes in an unstable market might actually help stabilize it). All-in-all now is a good time to look into buying a home.
At the Chernov Team we understand that knowledge is power, and knowledge of how the market will behave in the near future is certainly powerful knowledge. At the Chernov Team we know that whoever comes to the table most prepared leaves with the most, and the Chernov Team always leaves the table with the most.