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On Tuesday, July 9, Federal Reserve Chair Jerome Powell gave his semiannual
testimony to Congress, announcing that the stage is almost set for lowering interest
rates.

Powell has been watching carefully for signs of weakness both in the jobs market
and in the broader economy. He stated that a U.S. recession or meaningful increase in
unemployment will not be necessary to achieve the Fed’s target annual rate of 2%
inflation. Powell said, “There is a path to getting back to full price stability while keeping
the unemployment rate low….We’re very, very focused on staying on that path.”
The Chair also stated that the Federal Reserve does not need to wait until inflation
reaches the target rate to consider lowering the fed funds rates. June’s consumer price
index (CPI), released Tuesday, fell slightly from May, dropping the year-over-year rate to
3%--the lowest since June 2023 (when CPI was 9.1%).

Economists have noted that the economy is slowing down, paving the way for a rate
cut, possibly in September. There is also speculation that there could be up to two more
cuts before year end. We’ll get another piece of inflation news on Friday, when the
Producer Price Index (PPI) is announced.

What does this mean to the real estate world? Lower short-term rates driven by a
cooling economy could signal lower long-term rates in general. Mortgage rates could
come down in anticipation of lower rates, which would be good news for buyers and
likely bring a boost to market activity.

In January of this year, when it looked like the Fed was going to start lowering rates,
there were a lot of buyers chasing limited inventory, causing prices to be bid up. When
inflation news showed an increase instead, and it became clear that the Fed was going
to wait to lower rates, that caused many buyers to step to the sidelines. Some buyers
have been waiting for lower rates to step back into the market. This Fall could be their
chance.