Wondering when the Federal Reserve will reduce rates? After a whopping 11 rate hikes since 2022, investors and homebuyers are feeling the pinch of costly borrowing. The longer these rates stay high, the greater the damage to the economy. The Fed’s main goal is to dodge another U.S. economic recession. But if they keep up these high rates and don’t cut them by the end of 2024, we might be in for a rough ride.
For those looking to buy a home, the desire to buy is building up. Life’s milestones like having a baby, changing jobs, or moving parents in, are pushing people to buy homes. But with the average rate for a 30-year fixed-rate mortgage shooting up to over 7% from around 3% at the start of 2022, people are hesitant to buy or sell homes. This is keeping the inventory low and prices high.
Interestingly, high-interest rates are a blessing for the rich, making them richer while the middle class and poor bear the burden. This isn’t surprising given the Fed Governors are mostly wealthy, and people tend to look out for themselves first. Wealthy folks are less likely to need a mortgage, meaning they snag better deals. They also have more savings, which benefit from higher Treasury bond yields, money market fund yields, and CD rates.
Inflation hit its peak in mid-2022 and has been on the decline since. This shows the Fed’s rate hikes are slowing the economy. So, when will rates be cut? Once rates start falling, bond prices should rise, and mortgage rates should start to dip. This would help prevent a harsh economic crash that could spike unemployment rates and crush risk assets. The middle class would benefit the most from this, as they’ve been hit hardest by high-interest rates.
Now let’s turn to some predictions about when the first Fed rate cut will happen. Bob Michele, Chief Investment Manager at J.P. Morgan Asset Management, thinks the Fed could start cutting rates by the end of 2023. Preston Caldwell, a senior US economist at Morningstar, predicts rate cuts will begin in February 2024. Hedge fund manager David Einhorn expects the Fed won’t cut rates until March 2024. Diane Swonk, Chief Economist at KPMG US, predicts the first rate cut in May 2024. A Reuters poll of 97 economists forecasts the Fed won’t cut rates until at least April 2024. Goldman Sachs’ David Mericle expects rate cuts in 2Q 2024. The American Bankers Association’s Economic Advisory Committee predicts rate cuts after May 2024, and Vanguard believes rate cuts will begin in 2H 2024.
I believe that the Fed will start slashing rates in June 2024. By that time, the Fed would have had enough time to analyze the economic data from 1Q 2024 and the first two months of 2Q 2024. If there’s another rate hike in 2023, it will only strengthen my belief in a June 2024 cut, as it would further slow the economy.
So, let’s enjoy these high risk-free rates while we can. As we wait for great deals in risk assets like real estate, we’re strengthening our balance sheets each month. The key to making more money will be to seize deals BEFORE everyone can find cheaper financing. Some people are investing now, while others are looking for deals in 1H 2024. Once the Fed starts cutting rates, laggard buyers might rush in IF the economy doesn’t crash with a surge in the unemployment rate.
When do you think the Fed will finally cut interest rates and why? Now could be a great time to invest in real estate, with the current downturn due to high mortgage rates providing a better entry point for long-term growth. Consider checking out Fundrise for a more strategic approach to real estate investment. They primarily invest in residential and industrial properties in the Sunbelt, where valuations are lower and yields are higher.
