Rate Cuts VS Inflation

The Fed rate cut was all the news last week. This week? Buckle up: PCE inflation came in hotter than some hoped, and Congress is barreling toward a government shutdown. These twin threats could undo all our progress over the past month.

Not terrible but hot enough to rattle nerves.

And what do we know about the market? He’s a nervous little nelly. The Fed’s favorite inflation gauge, PCE, rose by 0.3% in August (and 2.7% YoY) - exactly in line with expectations. Core PCE, excluding food and energy, logged +2.9% YoY which is noteworthy.

That’s not scary high... yet. But it’s also not low enough to greenlight the two additional rate cuts Powell “promised” before year end. This sticky inflation suggests those

could…should?...be reconsidered. So far, the markets have just given the data a nod - modest bond yield declines, stock futures up. I think the message is: don’t consider further easing guaranteed.

In other words: the cut happened. But inflation’s whisper says: “I’m still here and I’m still a problem.”

Government Shutdown: More Than Just Politics

As if the political tension wasn’t painful enough, the federal budget clock is ticking. If Congress doesn’t pass a funding resolution by the October 1 deadline, we’ll face a government shutdown. That could ripple into rates, housing, and consumer confidence.

Here’s how a shutdown can hurt:

· It delays critical economic data releases (jobs, inflation, income), leaving the Fed flying blind.

· Key federal housing programs like NFIP (flood insurance) may halt issuing new policies, blocking closings in flood zones.

· Agencies that verify income, tax info, or process documentation (IRS, HUD, etc.) could slow or freeze – again, delaying loan closings.

· The uncertainty itself is a rate risk because while uncertainty typically drives demand for mortgage bonds, investors demand higher yields when confidence gums up.

· Fannie Mae & Freddie may be insulated (self-funded operations), but FHA, USDA, multifamily programs, or rural loans could be impacted.

Are there any potential silver linings?

Ironically, every time Congress teeters on chaos, it calms the bond market…at least temporarily. As mentioned, shutdowns trigger investor uncertainty and that uncertainty leads to a “flight to quality”, meaning global investors buy more U.S. Treasuries (considered a quality asset even if the government is not demonstrating a ton of quality). More bond demand = lower yields, which can help bring mortgage rates down.

It could also be good for inflation, in a sad way. Furloughs for federal workers, delayed vendor payments, weak consumer confidence means less spending, less GDP output. Not healthy, but maybe fuel for the Fed to act. Typically, this only happens in election years when the Fed is trying to asset its independence and appear neutral, as it gives them a

green light to be accommodating. As in, to reduce borrowing costs and stimulate the economy.

Would it cause buyers to freeze like we saw before the election? I could see activity going either way. In times of economic chaos, people want tangible assets, and few things feel more real than real estate. Investor demand is increasing, and we are seeing first time homebuyers jump off in too.

Long story short: a shutdown would be messy.

Recap + Other news

· Fed’s rate cut (25 bps) is now part of the backdrop. What matters now is how the market responds in light of inflation and looming fiscal shock.

· Jobs and employment data (still soft) are creating the weakness not greatness narrative.

· Mortgage rates, having dipped before but not after the cut, are under pressure again

· Real estate trends: inventory inching up, buyer applications rising, but pricing is still a challenge.

Truework recently conducted a study of Americans across the country who recently purchased homes despite the current climate of socioeconomic uncertainty. It was very revealing – especially when it comes to the financial stress Americans are under and the real motivation to buy or sell. While information is abundant and loud as fuck on platforms like Instagram and TikTok, those surveyed admitted that they were missing the context to really understand what they were being told. They also admitted to being stressed by financial burdens – 90% responded they felt the entire concept of purchasing a home was stressful and 24% described feeling surprised by how much it cost. Not the home itself, but the costs associated with purchasing a home. I imagine sellers feel the same.

What was most interesting to me was that they felt an urgency to buy now. I’m not surprised by that fact as I have seen how homeownership can provide a sense of control and stability. I also know the financial impacts personally and at this point in my career have witnessed it hundreds of times. The return on investment in real estate is unlike any other asset class. That wasn’t the reason they felt compelled to purchase even under difficult circumstances. It was out of life necessity.

Which is the bottom line – regardless of the chaos that is our world right now, people still have life events which means they will continue to need guidance on the economy and their finances so they can buy and sell real estate according to their personal milestones.

Upcoming Events!

Next week we have Property Pursuits on Wednesday and something even more special on the weekend. One of my favorite people in the world owns The Mill Pilates and Barre studio here in Reno. She is hosting two donation classes on Sunday morning that are open to the public and all the money raised will go to…drumroll please…The Women and Children’s Center of the Sierra. It’s a Future is Female x The Mill collab! Sonja and I would love to see all of you there at either 9am or 10am.

Oh, and be sure you are saving the date for Mortgage and Mimosas on October 30. Well, you should actually mark October 16th on your calendar because that is when we are opening RSVPs and there will only be 50 spots. They tend to go very quickly.