The U.S. Federal Reserve said it is making a quarter-percentage-point cut to the baseline interest rate, its second recent reduction, in a move that could have ramifications for real estate and the broader economy as Donald Trump’s second presidential term is set to start early next year.
Previously, the Fed cut the rate by half a percentage point in September, a move that was highly anticipated in real estate circles and other industries after rates increased 11 times from early 2022 to mid-2023 to cool inflation.
The latest cut comes two days after the election won by Trump, a longtime real estate developer. The Republican's upcoming second term adds another unknown for the economy heading into 2025. Inflation and the broader economy were issues in Trump’s race against the Democratic candidate, Vice President Kamala Harris.
Trump has criticized Powell’s decision-making, and some economists have expressed concern that Trump's proposals, such as raising tariffs, could once again push up the price of goods.
In its announcement Thursday, the Fed said it was lowering the new baseline target for the interest rates to between 4.5% and 4.75%.
“Recent indicators suggest that economic activity has continued to expand at a solid pace,” the statement said. “Since earlier in the year, labor market conditions have generally eased, and the unemployment rate has moved up but remains low. Inflation has made progress toward the committee's 2 percent objective but remains somewhat elevated.”
'Dual mandate'
Real estate investors were hopeful that the Fed’s first cut in September, larger than some had anticipated, was just the first in a series of reductions that might lead to a recovery in property values, sales volume and the development pipeline.
As he emphasized after the previous cut, Powell said at a news conference Thursday that the Fed is "not on any pre-set course" as it focuses on its "dual mandate" of maximizing U.S. employment while keeping the inflation rate around 2% over the long run.
The Fed said it will weigh factors such as the labor market, inflation pressures and expectations, and financial and international developments as it considers potential further cuts.
How soon and how significantly changes in interest rates will affect deals is likely to vary by market and even more so by property type, industry professionals have forecast.
During this century, it has taken between 1½ and 3½ years for commercial property sales volume and prices to begin increasing following interest rate cuts, according to CoStar News analysis of Federal Reserve and CoStar data.
Powell largely steered clear of discussing potential economic policies coming with a second Trump term or how they could affect Fed decisions or the central bank's independence.
He also declined to discuss how the election results indicate Americans' views on the economy.
Powell said he would turn down a request by Trump to step down from his position if asked. Later asked about whether a president has the power to demote or fire him, Powell said that is "not permitted under the law."