What The Fed Couldn't Say

On today's show we're dissecting yesterday's Fed rate cut announcement and what it means for us as real estate investors. The most meaningful part of the press conference was during the Q&A period when Chair Powell said that members of the FOMC shared their view in an informal poll. 17 out of 19 members said that they thought three more rate cuts would be appropriate in the next 12 months and that 10 out of 19 said that four more rate cuts would be appropriate in the next 12 months.Of course this informal poll of the members doesn’t identify which 12 members are the actual voting members at the time. Nor is it a commitment on a position in the future. Chair Powell was careful to say that they are making data driven decisions on a meeting by meeting basis.

There is an interesting paper published by the Fed which links rate announcements to bank rates for certificates of deposit. Here is the link to the paper

https://www.federalreserve.gov/econres/feds/files/2014108r1pap.pdf

The announcement is extremely helpful when it comes to investor psychology. It’s much more credible to have the Chair of the Federal Reserve

Saying that rates are falling than say the host of the Real Estate Espresso podcast predicting a fall in rates. None of us have a crystal ball, not even Chair Powell. But if Chair Powell is saying that Fed officials are predicting 3-4 more rate cuts in the next 12 months, we can include that in our investor communications. That doesn’t mean our borrowing rates will fall in reality. But the direction is at least somewhat clear.

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