Key Points
- The Federal Reserve cut its benchmark interest rate by a quarter point, the first such cut in nine months, though it was not as drastic as President Donald Trump desired.
- The real estate industry hopes lower rates could stimulate commercial transactions and help address the housing affordability crisis.
- While mortgage rates recently dropped, they do not directly follow the Fed's interest rate changes and it's uncertain how much further they will fall.
The Federal Reserve made its biggest move since December on Wednesday, cutting its benchmark interest rate by a quarter point.
The move represents the first time the central bank lowered the pivotal metric in nine months. The bank signaled two more cuts could be coming this year and said in a statement it “seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run.”
The questions are whether or not the cut will be significant enough to help the ailing parts of the real estate industry, as well as if it came too late.
“The Fed’s interest rate cut delivers a critical confidence boost for the commercial real estate industry, signaling a positive shift in market sentiment and supporting the ongoing recovery cycle,” Avison Young chief executive officer Mark Rose said in a statement.
After hiking rates in the wake of the pandemic, the Fed announced a half-point cut last fall, only to hit the pause button to try and control inflation.
The president himself has been conducting a pressure campaign on the independent institution, frequently attacking chair Jerome Powell and citing expensive renovations of the bank’s headquarters as a potential means for removal.
He’s also been attempting to fire one of the Fed’s governors, Lisa Cook, for alleged mortgage fraud. That attempt has been unsuccessful so far, however, and an emergency court ruling allowed for her participation in Wednesday’s meeting; Trump economic adviser Stephen Miran also secured a board spot with his Senate confirmation on Monday, adding to the drama.
Many in the real estate industry have also been clamoring for rate cuts, pointing to how lower rates could jumpstart commercial transactions and unlock the supply side of the housing affordability crisis by throwing a bone to developers.
It may not prove to be of much immediate help to homebuyers. While the average mortgage rate recently hit 6.35 percent — the lowest in almost a year, according to Freddie Mac — mortgage rates don’t directly correspond to the Fed’s interest rates. Instead, they track more closely to the 10-year Treasury note.
It’s also not clear how much farther mortgage rates have to fall after hovering above 7 percent at the start of the year.
But in recent months, Trump and his allies fielded direct efforts to assert influence over the Fed. A pair of Federal Reserve board members voiced their dissent after the central bank’s decision to hold rates steady in July.
