Fed Close to Cutting Rates: Could Tariffs Derail the Plan?

0:04The real estate market is constantly shifting and you as an investor need to be informed. I'm Dave Meyer, joined today by our expert panel of Kathy Fecky, James Daynard, and Henry Washington. Today, we'll break down the latest developments around why trade policies mean the Fed doesn't seem likely to lower rates in the next couple months, and President Trump's displeasure with that stance from Jerome Powell. We'll debate what would happen to the real estate market if Trump gets his way and we get a 1 % federal funds rate. Then we'll turn our attention to how recent developments in the New York mayoral race could affect Florida's real estate market and how all cash buyers are also rocking the boat in New York and across the country.

0:48This is On The Market. Let's get started. Henry, James, Kathy, welcome. It's great to have you here. And Kathy, I think a congratulations is in order, right? Oh, yeah. With your daughter getting engaged. Yes, we were in the Dolomites for a family vacation, the Italian Alps. And yes, Krista was proposed to and is now engaged. It was awesome. Congratulations. The pictures looked amazing. And having met Krista and her fiance, Alec, both wonderful people. Very excited for them. James, how are you doing? I'm doing good. It's been a scramble day. I just bought the biggest house I've ever purchased for a flip.

1:25And my contractor blew up the same day. So now I am in Scramble. my whole plan that I've been working on for 90 days is now in the toilet and it's time to restart on the most expensive home I've ever been in. So I'm doing terrific, Dave. Oh, you're awfully chipper about this whole situation. You know, I thrive in chaos and anxiety, so I will get it done. Yes, you will. All right. Good for you. I am sure you will get it done. I appreciate that attitude. Henry, I know you're in Vegas. I can see the background right now. How's Vegas coming for you? Vegas is going terrible for me in terms of gambling, but in terms of time with my family, it's been incredible.

1:59And I've been, I'm enjoying that. But also, I don't know, real estate's just not, not hitting today. My acquisitions manager's leaving, my sales guy, my other business is leaving. I just got an inspection report back on a house we're selling at. It's a flip their list of requested repairs for the inspection is the inspection report. They want every single thing found in the inspection fixed. Let's see. What else do I got? That's bad. It's been a morning. Man, something's in the water. Mine's small potatoes, but I might be in my first real estate lawsuit too. Let's just start it in a couple of days.

2:33I'll be suing them. Oh. Not the other way around. Way better. Yes, it's a better situation to be in. But man, something bad in the water this week. But hopefully we're all going to get through this thing. And today we are going to help you get through the very tumultuous market economic conditions that we're in right now. We have four great stories for you. So let's jump in. All right. I'm going first today. I always let everyone else go first. I always go last. I'm going first today because I think this story is important and everyone cares about interest rates and mortgage rates. So my headline reads, Powell confirms, this is Jerome Powell, the chairman of the Fed, confirms that the Federal Reserve would have cut rates by now were it not for tariffs.

3:15Basically, what they were saying is that the way the labor market is moving, the way that inflation is moving, if they didn't have fear that inflation was going to pick up because of tariffs in the next couple of months, they already would have cut rates right now, which to me signals that they are already seeing some weakness in the labor market and brings into question, what is the Fed going to do over the next couple of months? Henry, James, I'd love to hear your reaction. Henry, you're laughing. What do you think? Is that the reason or is that Jerome Powell's way of saying, hey, you want insurance rates down?

3:46If you hadn't have done this tariff thing, they would have been. Do you think he's trying to get the tariffs to get moved out? There's like a stalemate going on? No, I think it's a legit concern. Like, no one knows what the impacts of these tariffs are going to be yet. So like, that's their job. Their job is to try to predict what may or may not happen and then pull the one or two levers to have access to kind of either counteract that or help the situation. So politics aren't my strong suit and neither are strong economics, but it makes sense to me. What do you think, James? I actually think, and people are already going to get mad about this, I think Jerome Powell's actually done a pretty good job the last 12 months, like getting settled things down.

4:25I do too. But here's the issue I have. We had inflation a couple of years ago going and he's saying it was transitory. He's like, it's transitory. It's fine. It's fine. It's fine. Now we have really no inflation going on. So he doesn't raise rates when he should have. And now there's not much inflation going on, which I do think is a delay. The tariff impact hasn't hit it yet, but it doesn't make any sense. It's like, so when it was, inflation was high, you leave rates low. Now we don't have the inflation going on or it's very mild and he just wants to leave it alone. And he's afraid of what could happen when we all felt back at like a couple of years ago, that inflation was not transitory.

5:02We're like, this is not, this is not happening. Well, yeah, that's his legacy now, right? Is that he sort of like kept rates low too long and inflation spiked. So maybe he's like overcompensating and is very fearful of inflation because he missed it last time, essentially. And none of this is forever. They're going to review interest rates again and can make a decision. So I think it's cautious to be able to sit and wait for a little bit, see if the tariffs do have an impact on inflation and then make a decision rather than to make a decision, lower the rates now and then have to adjust it so quickly.

5:39And, you know, mortgage rates have been coming down just a little bit. They're not terrible right now. Yeah, they are getting a little better. We're not screaming from the rooftops about it, but it's nice seeing it move in a positive direction, I'd say. It's not at the level that a lot of syndicators were hoping it was going to be at right now, though. Yeah, the people who need it down need it down a lot more. But for an average homebuyer, it helps a little bit. Any rate relief helps, but that's what I don't understand, though. We all knew he should have raised rates a couple years ago. Now it feels like the point where we've kind of slowed down.

6:09Why don't we bring it down? But I guess also the jobs report. I mean, I think he's going to keep them kind of where they're at until we see some sort of break in this jobs report. I mean, more jobs keep adding in. The economy is doing fairly well. So why would he start cutting rates? Exactly. Like it just it doesn't make any sense. I feel like he's taking the approach of like until I'm forced to cut rates, I'm not going to. Where I think a lot of people, especially in real estate, want to be like, you know, err on the side of cutting rates where he's kind of erring on the side of stopping inflation.

6:40And, you know, that that is an area up for debate, which I will ask you to weigh in on. But, James, actually, today was kind of I saw something, you know, ADP, they put out these jobs reports. It's different from the government jobs report. But they showed for the first time, I think in like two or three years, the first time that private sector employment fell for smaller businesses. So we're starting to see the labor market crack a little bit. Continue unemployment claims are starting to go up. So there's definitely some signs, but I agree with you that it's been very resilient, remarkable about the U.S.

7:14labor market. So he hasn't been forced to yet. No, and I honestly, like, I want lower rates, but I don't want inflation. That's what I definitely don't want. I was just going to say, what's more important, in your opinion, to you and your business? Is high inflation more of a problem or higher rates more of a problem for a real estate investor? Depends on how much you're dispelling at the time. So I say it changes every six months. So like if I'm going to market with a bunch of houses, I want low rates and I don't mind if costs are raising because so does the price. But long term, I want stability.

7:44That's the biggest thing. Like this up and down is no good for business. Well, Kathy, I'll just get you to jump in because I think what we had so far is good. So I'll just keep going. All right. Well, obviously, everyone has different opinions. As James just said, you know, depending on where you are in your investing journey, you may care more about inflation or low rates. Like if you were Jerome Powell, James, Fed meeting coming up in July, would you cut rates by how much? Would you keep them steady? As of today, we're recording this July 2nd. I would leave him alone. You would leave him alone.

8:17All right. Henry, what would you do? I would leave him alone as well. Like I understand his position. We don't know what's going to happen with tariffs and how it's going to impact inflation. We haven't had this. Yeah, me too. You'd leave him? I'd leave him. All right. We're unanimous about this, actually. I, when going into this episode, I was thinking, I think just a little cut, maybe just a little 25 basis point, just a little snip, you know, like why not? A little nippy nip. Yeah, just a little nip on the cuts. But inflation did go up last month, not by a lot, but like by 0.1%. But as we've seen over the last couple of years, these things lag, right?

8:54Like a lot of stuff is set in motion before it shows up in the data. And personally, I'd want to see like one or two more months of data. If we see inflation relatively flat in June, July, I think they'll cut in September. I'm pretty sure about that. Right. But we got to see what happens with tariffs. You know, just today they announced a deal with Vietnam. Everyone's applauding it. It's a 20 % tariff on Vietnam, which imports a lot of construction materials, by the way. So like these things are starting to go into place. And I think we need to see what happens there. But I wouldn't wait too long because I do think that there are signs of the labor market starting to crack and especially for real estate needs some relief.

9:35You know, I changed my vote. I agree with Dave. Just a little one because also the mental – Yes. Because if you look at the – like what's going on in the market right now, stock market is doing well. Rates are a little bit lower, but it's a different vibe. So that little, little cut. Glimmer of hope. Yeah. Just throw us 25 basis points. Just a little baby cut. It's fine. Have you seen gold? Man, it's soaring. I know. I'm happy about that because I own a lot of gold. It's like an all new high. So that tells you something. Yeah. Well, the dollar's weakening, which is a really a whole other topic for maybe a whole other show because that I feel like understanding the value of the dollar is like a whole economic principle.

10:15Not a lot of people pay attention to, but it's it's at multi-decade lows. That's what you should know. It's the weakest dollar we've had in decades. So that will have implications. So maybe we'll talk about that in another one. But let's move on to our second story, which is kind of related to this one. Henry, you got another Fed mortgage rate one. What is it? So, yes, my article is related to interest rates. I don't know if anybody saw this, you know, air quotes news last week, but Trump basically came out and said that he wants interest rates cut and he thinks they should be around 1 % to 2%.

10:48OK. It was among some other comments about, you know, that Jerome Powell should retire and yada, yada, yada. None of that's what's important. And I brought this article because everybody says they want lower interest rates. I think one to 2 % is kind of insane, but I think we should talk about what if this actually does happen? I mean, I don't think there's no likelihood that it actually does happen, but what do we think the market would do if this actually did happen? How would it benefit sellers? How would it benefit real estate investors? So I'm curious to get your guys' opinions. This is a fun exercise, Henry.

11:21Thank you for bringing this Okay. So I think we're talking about federal funds rate at 1%. So we're talking about a 3.5 % mortgage rate. This is fun. Kathy, James, Henry, you go for it. I have a lot of thoughts, but someone jump in. Well, it's good to want, right? We all want. But somehow the president doesn't control interest rates. That's the funny thing. So I think he's used to pressuring and it just doesn't work that way with interest rates. It certainly isn't. We just talked about it with the Fed. Mortgage rates, it's totally unrelated to what the president does, though. Like, I just think it creates this catch 22.

12:01Like, yes, it would make people air quotes happy because they feel like they could afford a mortgage. But I also think that it's going to drive more people into the market, which is going to increase demand, which means more people are going to start buying houses and that's going to drive pricing up, which lowers affordability. And so there's this weird seesaw where like, yes, rates are great and help affordability, but then that also drives up prices, which hurt affordability. And which one is more detrimental to the average homeowner? Yeah, I think it's a really good point. Rates can help affordability in the short term, but long term, they can actually be detrimental to affordability.

12:43Like this is basically what we saw during COVID, right? Helped everyone buy a house. And now we have a really difficult affordability situation across the US. So, okay, a couple things here. Trump is obviously trying to stimulate the economy here. I think one reason he is really trying to hammer down interest rates is nothing to do with real estate. It has everything to do with the federal debt. And so I really believe, you know, a lot of our debt turns over every single year. And every time we issue bonds at 4 % or 5%, that means that more of the federal budget every single year is spent paying interest on our debt.

13:18And if we were to lower our interest rates and bond yields actually fell, that would help the national debt deficit situation. So that's one thing. Whether or not that actually happens, though, is unclear. Because I think if there is a situation where Trump basically forces interest rates down to 1 % and investors lose confidence in sort of the Fed independence that we've had traditionally in the United States, bond yields might not fall that much. Because when there is more risk in the market, and I think most investors would see a president controlling interest rates as higher risk, then they are going to demand what's known as a risk premium.

13:59And that means that bonds don't necessarily fall and follow suit with the federal funds rate. They could, but I just want to caveat that that might not happen. I will also say I agree with Henry, but if rates went down to 3%, I would probably just try and buy as much as I possibly could. But I don't think he's talking about mortgage rates, right? I think he's talking about the Fed fund rate. Yeah, he is. And also, along with that, if the Fed fund rate went down 1%, then that would stimulate the economy. People would borrow money more for their businesses on credit cards and so forth. And that stimulates.

14:31Anytime money gets cheaper, people buy more. So would it translate into mortgages? It would just depend on what bond investors are doing. And that's what I was saying earlier. Trump is a free market guy. You can't control the free market. The market controls the market. And bond investors are either going to buy bonds or not. And it depends on a lot of things, not just a command from the president. So, you know, how do we get there to lowering rates? Like what would have the Fed do that? Well, it's not really things that Trump wants, right? The Fed would have to see job losses. The Fed would have to see inflation come down more, which I'm not sure that the Fed is really that worried about inflation because it's really close to the target right now.

15:12Anyway, it's more about what could happen with tariffs. But for the Fed to cut rates 1%, it's almost like something bad would have to happen in the economy. And so it's a conflict. It just it's just not going to happen. I don't think it's going to happen unless we see job losses. The other risk of it, at least traditionally speaking, people believe that you don't want super low interest rates during relatively good economic times for two reasons. The first is that it can create inflation. So if you stimulate the economy when there's already inflation risk, that could exacerbate the problem. I don't know if that's going to happen here.

15:48I'm just trying to explain the theory of it. The second thing that could go on is if you boost rates or juice the economy too much during good times, then if something goes wrong, there's a black swan event, whatever, there's a recession, the Fed can't cut rates any further. And so it sort of takes the tool that the federal government and the Federal Reserve have used in the past, which is to cut rates, to stimulate economy, to get you out of recession. That tool is sort of taken away. And that is why just if you look historically, the Federal Reserve, when the economy is humming, they usually raise rates a little bit at a time over time, not to slow down the economy too much, but to give themselves some cushion in case things get bad so they can cut rates.

16:31So that's just another thing to consider if they go all the way down to one. I'm not saying the economy is perfect right now, but by a lot of measures, it's actually doing okay. And so like putting in basically like emergency level interest rates when there's not an emergency does come with risk. I don't think this is ever going to happen again, personally, but I know what I would do if it did. Like Dave said, I would go buy single family houses. I'd be putting my boat up for sale immediately. and then I would wait 12 months to sell off all my assets and then actually reload when the rates shoot back up because eventually it would happen.

17:06I just don't think it's ever a good idea. Like COVID, they left rates way too low for too long and we had way too much growth. And that's what's happening now. That's why the markets are stalled out. It's just too expensive. It's like crazy. You get the benefit now, but you hate it later. And so I don't think we should have ever been at that rate. And I think it was a total overcorrection during COVID. And, you know, they were trying to keep the economy pumping when they didn't really need to, or they could have done it for a very short amount of time. And I think this is one of the biggest mistakes we've made in our US economic history.

17:38Yeah, I agree with you, James, as an investor, more than a huge run up in prices, I just want predictability. That's like the most important thing. And so if we're having these big swings in interest rates, we've gone from I forget what the federal funds rate was in 2019. But then we went down to zero, then we went up to 5.7, then we would go back down to one. Like, this is really difficult for an investor. You know, my dream, we'd get a federal funds rate at like 3%, you know, and we've had mortgages in the five, five and a half percent range. Like that is a stable scenario for growth without creating huge affordability problems, without creating these boom bust cycles that we've been seeing in a lot of markets.

18:17To me, I would rather have that. I like steady and stable. You can dictate your own return. Yeah, you can manage your business better. Yeah, it's not luck at that point. Like, we all got pretty lucky the last five years, and I'd rather use logic over luck. All right, well, we've talked about the Fed enough today. Let's move on to our other stories, but first we have to take a quick break. Most deals don't fall apart because of the numbers. They fall apart because of the financing. You find a property that cash flows. The deal makes sense. But then the lender looks at your personal income, your tax returns, your debt to income ratio, and suddenly the deal doesn't qualify.

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21:22Welcome back to On the Market. I'm here with Kathy, Henry, and James. We've been talking a lot about the Fed, but we're moving on. Kathy, you have a total shift of gears. Tell us your headline. Well, this is going to be political again, so forgive me in advance. What do you got? This is an article from Traded. The title is How Mom Danny's Win in New York City Could Spark a South Florida Real Estate Surge. This is a blog written by a real estate agent, so it's their opinion. In South Florida or in New York? In South Florida, yeah. Okay. Who said that basically within 24 hours of Momdani's unexpected victory in New York City's mayoral primary, South Florida real estate brokers were already fielding calls.

22:08The ripple effect say industry insiders say is unmistakable and gaining momentum. So to kind of give a little background on this, Momdani is being called a socialist, even a communist. You know, he was nominated as the Democratic nominee. And some of his promises include taxing the wealthy to pay for free buses, free child care, create city-owned grocery stores, freeze rent for all stabilized tenants, and triple the number of permanently affordable union-built rent-stabilized homes. So according to the New York Times, the real estate industry is frightened. Real estate industry titans are frightened.

22:52The Real Deal came out and said it was a crushing defeat for the real estate industry. So, you know, it's interesting because Florida has been seeing a slowdown, and this could boost it if more and more New Yorkers want to get out. Well, I did see this, right? I think in the Wall Street Journal, they had some article about all these hedge fund Wall Street people saying that they were going to leave New York after seeing this, which definitely happened during COVID. Like a lot of financial firms moved to South Florida from New York. Yeah, it definitely happened. So I could see something like this happen, but I would have to imagine it would really be in the luxury market.

23:30I think most normal folks aren't going to like flee the place that they live due to a mayor. Well, I mean, if you own apartments, if you have a REIT that's an apartment REIT and you own a bunch of apartments in New York and you're going to potentially face rent freezes. But isn't it for already rent stabilized places? So it sounds like the rent freeze would affect about 27 % of the overall housing stock in New York City, which is in about 41 % of rental apartments. Wow, that's a lot. I didn't realize there was that much rent stabilized in New York. That's a lot. Wow. Okay. So yeah, so freezing the rent for a sizable portion of the rental market and then a plan to construct 200 ,000 new affordable union built rent stabilized units over 10 years and fast tracking approval for affordable development.

24:24So that's what the policy states. Honestly, I have a hard time even like conceptualizing how this might play out. My only frame of reference is when I was living in Amsterdam, they did something similar where they froze rents. There's like this complicated point system where it's like depending on the size and the location, like you could raise your rents by X percentage. And what happened was a very dramatic increase in rents across the board. I think it went up like 30%, like really dramatic because a lot of people sold their properties. A lot of rental owners, especially non-professionals, like people who are just mom and pop, just like didn't want to deal with this, they wound up selling it.