Fed Signals a September Rate Cut

Overview: Over the past week, investors were focused on a speech by Federal Reserve Chair Jerome Powell. While far from a sure thing, Powell suggested that cutting rates was a reasonable option given current economic conditions, which was viewed as a win by investors hoping for looser monetary policy. As a result, mortgage rates ended the week a little lower.

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The annual speech from the Jackson Hole economic summit has often been used by the Fed Chair to signal upcoming policy changes, making it a closely watched event for investors. On Friday, Fed Chair Jerome Powell expressed a willingness to consider cutting the federal funds rate due to a shift in the balance of risks between inflation and the labor market. He called for greater patience, emphasizing that changes in government policies have elevated the level of economic uncertainty, resulting in more difficult decision making by Fed officials. Basically, he explained that government policy changes may be causing the labor market to weaken, and the typical response would be to lower rates. However, higher tariffs also increase future inflationary pressures, making Fed officials hesitant to lower rates. Most investors now anticipate that the Fed will reduce the federal funds rate by 25 basis points at the next meeting on September 17.

In July, sales of existing homes, which account for roughly 85% of the total market, increased 2% from June, exceeding the consensus forecast. Sales were slightly higher than a year ago. The median existing-home price of $422,400 was up just barely from last year at this time, marking a record high for the month of July. Inventory levels remain low, standing at just a 4.6-month supply nationally, well below the 6-month supply that is considered typical in a balanced market. The trend is positive, however, as inventories were 16% higher than a year ago.   

The results were similar for the segment containing newly constructed homes. In July, new-home sales, which account for the remaining 15% of the market, rose 1% from June, above the consensus forecast. The median new-home price of $403,800 was down 6% from a year ago. While existing-home sales measure actual closings during the month, new-home sales are based on contracts signed, making them a leading indicator of future housing market activity. 

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Existing-Home Sales (millions)

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Week Ahead

Aug. 29

Personal Income and Outlays

Personal Consumption Expenditures (PCE) Price Index

Sept. 1

Mortgage Markets closed for Labor Day

Sept. 2

Institute for Supply Management (ISM) Manufacturing Index

Sept. 4

ISM Services Index

Sept. 5

Employment Report