What the November FOMC meeting statement said
The Federal Reserve’s Open Market Committee (FOMC), the rate-setting body that meets roughly eight times per year, cut the Federal Funds rate at its meeting today by 25 basis points to a range of 4.5 to 4.75%. While smaller than the 50 basis point cut made in September, this cut falls more in line with the typical calibration size, and the decision was unanimous, with all 12 members voting in favor.
What the November FOMC meeting statement did not say
The Fed is an independent and apolitical institution. While markets, businesses, and consumers are adapting to the implications of the Presidential and other election results, the Fed kept its focus on monetary policy and, as expected, did not comment on the implications of the election in its statement.
The labor market continues to cool
Unexpectedly low October job growth came on the heels of better-than-expected labor market data in September that has since been revised lower. These data remind decision makers that it is important to consider broad trends rather than any single piece of information. As a whole, the totality of the data suggests that the labor market continues to slow, and the risks of cooling too fast or too slow are likely more balanced than was thought in early October.
Solid real economic growth pushed up longer-term interest rates
Furthermore, real economic growth has continued, with the economy expanding at a 2.8% rate in the third quarter. Although this period was largely before the Fed’s initial September cut, longer-term interest rates like the 10-year Treasury eased by more than a percentage point from 4.7% in late April to 3.6% in mid-September, creating largely favorable financial conditions for households and businesses in the third quarter. Since September, the 10-year yield has climbed more than halfway back up, hovering around 4.3% in recent weeks, providing a modest financial headwind.
Inflation progress continues
At the same time, the Fed is very close to its inflation target. While Consumer Price Index (CPI) inflation fell to 2.4% in September, the Fed’s actual target, Personal Consumption Expenditures (PCE) inflation, registered just 2.1%, just a tick higher than the 2% target and its lowest since February 2021.
Of note, both Core CPI and Core PCE – measures that exclude noisy energy and food prices–have remained stubbornly elevated as falling energy prices help to dampen overall inflation. I expect the Fed to acknowledge this challenge and underscore its commitment to keeping inflation in check, but I don’t expect the lack of progress on core inflation to prevent a further rate cut at the November meeting.
What this means for home buyers and sellers
In July 2023, the Fed raised rates for the last time in this tightening cycle that began in March 2022. Longer-term interest rates like the 10-year Treasury anticipated policy normalization, and eased before the Fed’s September rate cut, but since then, economic resilience has pushed longer-term rates higher. Mortgage rates have charted a similar path, falling by more than a percentage point from their May 2024 calendar year peak of 7.2% before rebounding back.
As mortgage rates fell, both sellers and buyers jumped at the opportunity. Realtor.com housing data show that new listings rebounded in September followed by a pick-up in pending home sales in October that suggests a home sales rebound could be ahead in November. The recent bounce back in mortgage rates, however, puts a question market on the sustainability of that rebound.
Economic growth in the form of job gains and wage increases mean additional buying power for homeowners, but the higher interest rates that accompany stronger economic growth may continue to be a hurdle for homeowners with low existing mortgage rates contemplating a move. More than 4 in 5 homeowners with a mortgage have an existing rate below 6%, a threshold well-below today’s market rate. And while first-time home buyers are unconstrained by the lock-in effect, softer rent growth and still elevated home prices and down payments, mean that getting a foot in the door is no small feat.
Despite these challenges, Americans remain optimistic about homeownership, and homebuilders are positioned to fill in the gaps, especially if policy makers at the federal, state, and local levels can clear challenges to building. While existing home sales continue to tread near 30-year lows, new home sales remain on par with a pace similar to 2019, and even as existing home prices continue to climb, a focus on smaller-footprints and affordability has kept new home prices more steady.