THE FED MAKES FIRST CUT

The Federal Reserve cut its benchmark interest rate by a quarter percentage point on Wednesday — the first reduction in nine months. Policymakers now project at least two more quarter-point cuts before year-end, up from earlier forecasts. The move brings the federal funds target range down to 4%–4.25%, after holding steady through five consecutive meetings.

Why the Shift?

Recent data shows slowing payroll growth, rising unemployment, and persistent inflation pressures. Fed Chair Jerome Powell acknowledged these mixed signals:

“Unemployment remains low, but we see downside risks,” Powell said.

Inflation has climbed for four consecutive months, hitting the highest level since early 2025, even as job creation has stalled. That combination of slower growth and rising prices — stagflation — forced the Fed’s hand.

Political pressure has also intensified. President Trump has repeatedly criticized Powell for being slow to ease, while controversy surrounding Fed board members added tension to this week’s meeting.

Market and Real Estate Reactions

Commercial and residential real estate professionals see the cut as a welcome, if modest, catalyst:

• Commercial: Lower financing costs could revive deal activity, particularly in multifamily and equity-driven transactions. Office remains the laggard but may see a morale boost.

• Residential: Mortgage rates have already ticked lower. Freddie Mac reports the 30-year fixed average fell to 6.35%, its lowest since October 2024. If rates trend below 6%, more buyers could reenter the market, and refinancing opportunities would expand.

As Josh Winefsky of HSF Kramer noted:

“It brings some positive momentum to a category that needs it.”

Parallel Moves Abroad

The Bank of Canada also cut its overnight lending rate by 25 basis points, to 2.50%, its first reduction in six months. This synchronized easing adds further momentum to global capital markets.

What Comes Next?

The Fed’s “dot plot” now implies two additional cuts in October and December. Yet, divergence among policymakers remains — one member pushed for a half-point cut this week. Powell emphasized a “meeting-by-meeting” approach, acknowledging the delicate balance between cooling inflation and supporting jobs.

Implications for Housing and Investment

Lower borrowing costs may:

• Entice sidelined buyers back into housing markets.

• Encourage homeowners to list, easing supply shortages.

• Boost refinancing activity, improving household cash flow.

For commercial real estate, incremental cuts won’t solve systemic challenges like tariffs, high construction costs, or structural office vacancies. But as BGO’s Ryan Severino put it:

“If it portends looser monetary policy ahead, it could provide a safety net — even if monetary policy cannot fix everything that ails the economy.”

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👉 Bottom line: This rate cut signals the start of a new easing cycle. For real estate, it may not be transformative on its own, but it restores momentum at a time when confidence has been under pressure. The real question now is how quickly the Fed follows through — and whether inflation allows them to keep cutting.

Gary McKae
Commercial Real Estate Advisor | Investor Advocate | Author
📍 McKae Properties, Inc.
📧 gary@pacwestcre.com
🌐 www.mckaeproperties.com
📞 (650) 743-7249
📍 2044 Union Street, San Francisco, CA 94123
DRE# 01452438

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