This Week In A Nutshell
Markets expect the Fed to cut interest rates by 25 bps when they meet on Wednesday, meaning the cut itself will have little effect on rates. But a number of dissents are expected and they will also release formal projections for 2026. Those projections, along with the tone of Chair Jerome Powell’s comments at the press conference, could make rates volatile.
Upcoming Attractions
Fed meeting and press conferences (Wednesday): A 25 bps cut is almost certain at this point since the Fed likely would have leaked details to the press in the last few days if they were unlikely to do as markets expect. The meeting will be contentious with several regional bank presidents dissenting in favor of holding rates constant. What might move rates is how their 2026 projections compare to market expectations, which currently includes two cuts. Economists expect the Fed to project one cut in 2026 and one in 2027.
Job openings and quits data (Tuesday): Delayed data for October is expected to show a small decline in job openings
Fed speak (Friday): Three FOMC officials are speaking, including Chicago Fed President Austan Goolsbee, a current FOMC voter
Last Week’s Highlights
ADP jobs report showed the private sector shedding more jobs than expected. In the absence of official jobs data until next Thursday December 18 when we will get the October job creation number and November jobs reports (including job creation and unemployment rate), it’s difficult to know how much weight to put on the ADP report.
Core PCE inflation came in largely as expected based on CPI/PPI data, showing inflation firming in September above the Fed’s target, but not increasing as much as economists expected in the spring given tariff levels.
Diving a Little Deeper: Last week, it became clear that current National Economic Council Director Kevin Hassett is the front runner to be the President’s nominee to succeed Jerome Powell as Fed Chair in May 2026. A formal announcement is expected in January, but the news reports are likely intended to test the waters for his candidacy. While the Fed Chair is often portrayed as setting interest rate policy, the reality is more nuanced. In order for a Fed Chair to be successful in guiding monetary policy, s/he must have the confidence of both their fellow FOMC colleagues and financial markets.
The Fed Chair is but one of twelve votes on the Federal Open Market Committee, which includes all seven governors on the Federal Reserve Board and the five regional bank Presidents (out of twelve total) who vote in a given year. Historically in the US, the Chair has always voted with the majority, but that need not be the case going forward and is sometimes not the case at foreign central banks. The Chair must have the confidence of a majority of the other FOMC voters in order to have outsized influence on interest rate policy.
The Federal Reserve only directly sets the Fed Funds Rate, an overnight lending rate, which influences, but does not determine long term rates such as mortgage rates. Mortgage rates are priced off of ten year treasury yields, which are determined based on investors’ expectations for economic growth and inflation over the next ten years. Mortgage rates can move in the opposite direction of short term rates like the Fed Funds rate, if investors believe, for example, that the Fed is cutting too much and risking higher inflation in the future. This trade off between short term and long term outcomes is why the Fed’s independence is so critical. One recent example of the effect of eroding the Fed’s independence was on July 16 when Bloomberg reported that the President intended to fire the Fed Chair. Long term rates increased while short term rates fell on the news until the President dismissed the report as inaccurate.
Redfin Housing Market Reports
- Investor Activity Is Muted, With Home Purchases Up 1% and Market Share Holding Steady
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- U.S. investor activity was sluggish in the third quarter, with investor home purchases up 1% from a year earlier and market share rising marginally.
- Investor purchases are fairly flat because it’s harder to make a profit as a flipper or a landlord than it used to be; the share of investor-owned homes selling at a loss is sitting at its highest level in 2 years. But some investors are still making moves, taking advantage of slow competition.
- Investor purchases of condos are down just slightly year over year, but they’re still sitting near a decade-low.
- Investors are pulling back most from Las Vegas and Florida.
- Starter-Home Sales Climb 5%, But Prices Stay in Check as Inventory Hits 9-Year High
- Starter-home sales rose 4.9% year over year, increasing for the 14th consecutive month. In comparison, sales of mid-priced homes inched up 0.7%, and high-priced home sales rose 0.8%.
- Starter home sale prices rose 2% year over year to a median $260,000 in October.
- Active listings of starter homes rose 13% year over year, pushing inventory to its highest October level since 2016.
- San Francisco recorded the biggest jump in starter-home sales (+19.5%), followed by Providence (+13.0%) and Portland (+12.9%). San Antonio saw the largest decline (-9.6%), trailed by Detroit (-7.9%) and Nashville (-5.5%).
- 15% of Home Purchases Fell Through in October, Up Slightly From a Year Earlier
- Homebuyers are getting cold feet due to high housing costs and economic uncertainty. Many are convinced they’ll be able to find a home they like better because there are so many listings on the market.
- Homebuyers are most likely to walk away in Texas and Florida, and least likely in Nassau County, NY and the Bay Area.
