25 bps? 50 bps? 75 bps? What Will The Fed Do in 2024?

Federal Reserve Chair Jerome Powell has outlined two potential scenarios for cutting interest rates this year: a retreat in inflation or a weakening job market. Currently, both seem possible. The Fed's preferred inflation measure is just 0.5% above its 2% target, and the unemployment rate has climbed to 4.3%, the highest since October 2021. After a recent meeting, Powell hinted that rate cuts could be on the table for the September meeting if favorable data emerges. 

Economists now debate the extent of potential rate cuts, shifting from "if" to "how much." Some predict a half-point cut, while others consider a quarter-point move more likely. Investors are similarly split on the magnitude of cuts expected by year's end.

What Real Estate Investors Should Watch For in 2024

- Inflation Trends: Although inflation has eased, it remains above the Fed's 2% target. Investors should monitor how inflation data evolves, as further cooling could lead to rate cuts.

- Unemployment Rates: Unemployment has recently risen to 4.3%, a level not seen since late 2021. A weakening job market could prompt the Fed to cut rates, which might influence property values and financing options.

- Magnitude of Rate Cuts: Analysts are divided on whether the Fed will opt for a 25 or 50 basis point cut. The size of the cut will have direct implications on mortgage rates and investment yields in the real estate sector.

Deep Dive: 

1. Has Inflation Been Curtailed? 

The Federal Reserve's favored personal consumption expenditures (PCE) index and the consumer price index (CPI) have been curtailed significantly, but we are still above the ~2% target. 

2. Where Does Unemployment Stand?

Unemployment has crossed the 4% mark to hit 4.3% in July 2024, a level not seen since Q3 of 2021 when the economy was still struggling to recover from the Pandemic. 

While the current level is historically low, the rate of change has been rapid. For instance, last month's rise in the unemployment rate triggered the "Sahm rule," a well-known recession indicator. However, relying on one indicator can be misleading. When the Fed started raising interest rates, the job market was in an exceptionally strong position. Additionally, the U.S. economy has consistently defied economists' expectations, recovering more quickly than anticipated after the pandemic. This isn't the only traditional recession indicator that has been unreliable in the post-pandemic era. Another example is the U.S. economy contracting in the first two quarters of 2022, a common benchmark for identifying the start of a recession.

3. Fed Rate Cuts on the Horizon: Key Considerations

The Federal Reserve is keeping a close eye on the economic landscape, with most officials agreeing that the factors currently pushing down inflation—like a slowing economy and consumer resistance to high prices—are likely to continue. However, there’s growing concern among some that the labor market’s ongoing cooldown could turn into something more serious. The minutes from the latest meeting reveal a cautious approach among policymakers, with several expressing concerns that cutting rates too soon or by too much could undo the progress made in controlling inflation. Despite this, it’s clear that a rate cut is on the table for the September meeting. The real question is whether it will be a modest quarter-point cut or something more significant, like a half-point reduction. 

So, How Much Will The Fed Cut? 

The exact rate cuts deeply depend on the latest inflation figures, unemployment numbers, and various other factors. After the July Jobs Report, according to CME’s FedWatch tool, almost 75% of analysts believe that the Fed might cut rates by 0.25%, while 25% are betting on a 0.5% rate cut. While the exact percentage may be unknown for now, it is very likely that the Federal Reserve will have at least one rate cut of 25 bps this year. 

P.S. If one of your priorities, like mine, is building and preserving your wealth through multifamily real estate investments, click here to download my new eBook: The Ultimate Guide to Creating & Preserving Your Wealth.

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About Ellie Perlman

Ellie Perlman is the founder of Blue Lake Capital, a commercial real estate investment firm specializing in multifamily investing throughout the United States. At Blue Lake Capital, Ellie partners with both institutional and individual investors to grow their wealth by achieving double-digit returns by investing alongside her in exclusive multifamily deals they usually don't have access to.

A defining factor of Blue Lake Capital’s strategy is founded in utilizing machine learning/artificial intelligence throughout the course of all acquisitions and asset management. This advanced technology enables the company to produce accurate and data-driven forecasting for all assets on a market, property, and even tenant basis. In doing so, Blue Lake is able to lead commercial investments with the full capabilities of today’s technology.

Ellie is the founding host of REady2Scale, a podcast that highlights the assets, processes, and strategies for the multiple approaches to successful real estate investing.

She started her career as a commercial real estate lawyer, leading real estate transactions for one of Israel’s leading development companies. Later, as a property manager for Israel’s largest energy company, she oversaw properties worth over $100MM. Additionally, Ellie is an experienced entrepreneur who helped build and scale companies by improving their business operations.

Ellie holds a Masters in Law from Bar-Ilan University in Israel and an MBA from MIT Sloan School of Management.

You can read more about Blue Lake Capital and Ellie Perlman at www.bluelake-capital.com.

*The content provided on this website, including all downloadable resources, is for informational purposes only and should not be interpreted as financial advice. Furthermore, this material does not constitute an offer to sell or a solicitation of an offer to buy any securities.