Money Printing 2.0? The Fed’s New Emergency Measure

0:00The Fed cut rates again yesterday. They also, at the same time, announced a new measure that they typically reserve for more emergency-style crises that seems to be somehow flying under the radar. But today we're going to unpack it, all of it. We're going to talk about the Fed's announcement, some of the details behind the scenes that gives us clues about what might happen next year, the announcement of this new tactic meant to stabilize the economy, And on top of all, the Fed News will also share the most recent housing market data that gives us some clues as to what markets will thrive and which will struggle in 2026.

0:41Hey everyone, welcome to On The Market. I'm Dave Meyer, housing market analyst, real estate investor, head of real estate investing here at BiggerPockets. Today on the show, we're going to dig into three pretty big news stories. First, we got to talk about the Fed. We all know they cut rates, but there was more to this meeting that meets the eye. And even though mortgage rates did not really fall based on the cuts, there are some clues in the most recent announcements from the Fed that help us understand the broader state of the economy and the housing market, including some big news no one really seems interested in talking about, but I'm definitely interested in talking about it.

1:22So we're going to get into that. Then we have other housing market news for you. It's the last time we're doing this before the end of the year. We're going to talk about some inventory trends and some housing affordability news that I think is going to really shed light on some investing conditions heading into 2026. So let's do this thing. First up, we're talking about the rate cuts because, of course, we are. The Federal Reserve cut rates for the third consecutive meeting, basically doing what was largely expected of them. If you asked any economist, real estate investor, trader on Wall Street, everyone knew there was going to be a 25 basis points cut, which is exactly what happened.

2:02The federal funds rate now sits between target range of three and a half to 3.75%. And this is part of a trend. Yes, they've done it the last three consecutive meetings. But if actually you look back over the course of the last 15 months, they've actually brought rates down a considerable amount. 1.75 % in just the last 15 months alone. And I know that might not feel like a lot, especially if you're particularly interested in mortgage rates coming down. But I just want to call out that if you look at this in a historical perspective, seeing rates fall that much over this short of a period of time is a lot.

2:39It's probably because they over-tightened. I think we could all probably say that now. But they're doing basically what they need to do to hopefully bring it back towards a more balanced monetary policy. Now, that part, like I said, is not news. But some of the behind-the-scenes stuff that got announced yesterday, I think is news and is worth talking about because it does give us hints about where the Fed might be going, where other types of monetary policy things that might more directly impact mortgage rates are going to go. And there's just all sorts of things we need to unpack. So the first thing I think that you need to know is that this was the most dissent in a Fed vote that we've had for a while.

3:20I know a lot of people think that Jerome Powell is a dictator or he just decides what monetary policy is going to be. That is not how it works. There are 12 Federal Reserve governors and they vote on the direction of monetary policy for a long time, five, six, seven years, basically since the beginning of COVID, maybe even a little below that. The Fed governors have basically voted in a block. Like maybe there's someone who disagrees. Maybe there's two people who disagrees. But this vote is the first time in more than six years that there were three Fed officials who voted against the cut. Now, that's not crazy.

3:59It's not like a split decision. Nine people still voted for it, three against it. But it shows to me that the Fed itself does not know where mortgage rates are going. There is increasing uncertainty about what they're supposed to do. And, you know, people say the Fed should do this. Fed should do that. The Fed is not one thing. It's 12 different people. And those 12 people are increasingly disagreeing about what they should do. And I'll talk about more about what that means in just a minute. But I thought the interesting thing about the dissent, the three people who voted against this, is they all weren't doing it for the same reason.

4:36Two people said that they didn't think that the cut was warranted at all. They're probably people who are more worried about inflation than the labor market. Remember, the Fed has this dual mandate. Their job is to balance inflation and the economy overall, kind of the labor market. And they're in a tough spot right now. I don't think anyone could say that they are in an easy position right now and these decisions are easy. Some people are going to think inflation is a bigger concern. Some people are going to think labor market is a bigger concern. Two of the voters believed that actually inflation is a bigger concern than the labor market and they shouldn't cut rates at all.

5:12One of the voters, though, actually said that they're very concerned about the labor market, not really concerned about the inflation. And so there should have been a bigger cut. So clearly the broad agreement that the Fed has had amongst its members over the last couple of years is starting to break down. But not crazy. like I said, nine of the 12 voters felt that like a measured step was appropriate, that helping out the labor market, signaling to the market that they're going to lower rates was appropriate. Even though there are still risks of inflation, they felt that this was the right thing to do.

5:45That was the majority view. Now, the Fed does release something called the Summary of Economic Projections. I love looking at this. This is my favorite part of any Fed meeting, they basically hold the 12 voters and say, where do you think GDP is going? Are we going to a recession? Where do you think the unemployment rate's going? Where do you think the federal funds rate should go over the next couple of years? And this, obviously, they don't know. Maybe they know a little bit better than us, I think, based on their track record the last couple of years. I don't know if they could realistically argue they know much better than us, but they are at least informed economists, people who look at this stuff all the time, So it's kind of helpful to know where they think things are going because you can sort of back into some of the monetary policy based on that.

6:32What they are showing is that they think that inflation is going to peak in early 2026. So they think that because of tariffs, because of some of the immigration policy, inflation has picked back up this year. Again, nothing crazy. You know, it was heading down to the low twos. Now it's in the low threes. It's above the Fed's target. nothing close to where we were in 21, 2022, but it's up. It's been up. We haven't gotten data for the last like three months, so we don't really know what's happening over the last couple of months, but it has been up. But the Fed sees that as short term. Those are famous last words.

7:06They called inflation transitory 21 and 22. That wasn't right. That was just straight up wrong. But I think there's reason to believe that this might be a more muted case of inflation. I am hoping so because I've seen some other arguments that inflation might remain sticky, not go crazy, but like instead of going up to five or six or seven percent, it might just like be really hard to get it back below three. And I think there are reasonable arguments there, but the Fed doesn't think that's going to happen. Largely, they believe that inflation is going to go down next year from about two point eight percent.

7:42I'm using PCE inflation, not CPI, if any of you nerds care. But then it will go down to about 2.5, then to about 2. And then they think they'll actually get to the Fed's target closer to 2028. They are also forecasting no recession. They're saying they're expecting real GDP, inflation-adjusted GDP to grow about two-ish percent for the next four years. That's about average. Average GDP growth is two to three percent. So they're saying nothing crazy there. And as a result of that, because they don't think there's going to be a recession and they don't think inflation is going to be crazy, but it's going to be sort of mild around the board.

8:16They're saying that they're only expecting one interest rate cut next year. Isn't that crazy? That is less than I was expecting. I thought they would say more. They are saying, you know, we're going to end 2025 median federal funds rate 3.6 percent next year for the whole year. They're saying the average is going to be 3.4 percent. So that's one 25 basis point cut. The year after that, in 2027, they're saying 3.1%. So as of right now, their path that they are projecting is just two more cuts for a total of 50 basis points over the next two years. Now, these are not promises. These are just forecasts.

8:51But the Fed is very honest that they changed their opinions with every data print. Every time they get inflation data or GDP data or unemployment data, they changed their minds. But I just wanted to call out because I think it's important that people know that we've gone from this period where everyone was expecting the Fed to be continuously cutting rates to a point where they're saying, like, hold the brakes. We don't know what we're going to do. And our most likely path is not a lot of rate cuts. So that's something to keep in mind. Now, of course, you might be sitting there and I would not blame you for sitting there and saying, why do I even care about this?

9:26Because it doesn't even impact mortgage rates. And that is true, right? people for years have been saying the Fed's going to cut rates, mortgage rates are going to come down. I have on this show for I think years now been saying that that's not really how this works. And hopefully we have enough evidence now that everyone understands that the Fed does not control mortgage rates. We just saw them yesterday, cut rates, 25 basis points. Mortgage rates went down by like 0.05%, a tiny little bit. And they're actually up from where they were in September when the federal funds rate was higher. So hopefully we all understand now that the federal funds rate controls shorter term interest rates.

10:03This is not 10 year treasuries, which is what we care about with mortgage rate. It is not 30 year fixed rate mortgages. What it could help with is short term borrowing costs. So it's what people call the short end of the curve. It can help support asset prices and equities. Like if you're looking at the stock market, it could help bolster the stock market. It could stir up the financial system. It could even potentially help the labor market. But are these cuts helping mortgage rates in the first place? No. So I'm telling you this because, yes, people might be discouraged when they hear this news that the Fed's not going to cut rates much more.

10:39But hopefully you see now that that is not what matters when it comes to mortgage rates. We're still sitting at 6.3 percent in order for mortgage rates, residential mortgage rates to actually come down, we need one of two things to happen. There are other ways things can happen, but one or two major things typically can bring mortgage rates down from where we are today. We either need inflation to go down, ideally below 2%, which I think will probably take a while, or we need to go into a significant recession where people take their money out of the stock market and they put them into bonds. Those are the ways that this happens.

11:12Right now, it does not feel like either of those are imminent, right? There's risks of a recession for sure. But like, are we, you know, in the next month or two going to go into a deeper session? Doesn't seem that likely. The data doesn't support that. Inflation has been going up for four or five months. And I think even if it turns the corner in early 26, the way the Fed expects, it's probably a slow road down from there. And so until this logjam of uncertainty works itself out with inflation and recession, we're not getting a lot of movement in mortgage rates. That's why I've said next year, I think the range is going to be between five and a half and six and a half percent.

11:47And my guess for an average is somewhere around 6.1, 6.2 % for next year. I don't think it's going to go down that much. Now, if you're in commercial real estate, this could help because commercial loans are based on shorter term loans, right? You have a three year arm, a five year arm. Like I said, what the Fed does more directly impacts those shorter term types of loans. And so this could help HELOCs. It could help any loans that are tied to SOFR. It could help commercial loans. So that is good for the coal commercial real estate industry, which needs a win. This could help. But again, temporary expectations because rates are not expected to come down much more than they are today.

12:31If there's a big recession, that could change. But as of right now, people are expecting monetary policy to remain somewhat stable. Now, that's the big news. That's sort of what's being covered everywhere in terms of the Fed news. But I just want to call out something else happened yesterday with the Fed that not a lot of people are talking about. I want to talk about it because I think it's super interesting and it could be a stepping stone to actual real mortgage rate relief. We're going to talk about that. But first, we got to take a quick break. We'll be right back. You insured the walls, the roof, the plumbing.

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15:35Welcome back to On the Market. I'm Dave Meyer. Before the break, we talked about sort of the headline Federal Reserve news. But what I want to turn our attention to now is something else that happened with the Federal Reserve yesterday, because the big news is always what they're going to do with the federal funds rate. As we said, they cut it 25 basis points. But yesterday, they did something else. They pulled out another tool of their little bag of tricks, and they announced that they would begin buying treasuries in January. Specifically, they're going to be buying short-term treasuries. These are short-term loans in a program they call reserve management purchases.

16:17So although this might sound like quantitative easing, where the Fed has gone out and bought long-dated US treasuries or went out and bought mortgage-backed securities, they're saying that this is different, at least for now. They are saying that because they are just buying short-term treasuries, it is not quantitative easing. Their goal in this reserve management purchases is to basically, it's kind of like a technical move to ensure the smooth functioning of the financial system. They are trying to be proactive to address potential strains in short-term funding markets and that they can ensure, their goal is basically to ensure that that federal funds rate, the one we were just talking about, that the range is to be between 3.5 and 3.75, they basically need to put liquidity into the system to make sure that the cost that banks pay to borrow money overnight from the Fed, that's what the federal fund's rate is, stays between 3.5 and 3.75%.

17:15If they didn't make these purchases, if they didn't inject liquidity into the system, their concern is that even though they lowered the target in reality, because there wasn't enough money, there wasn't enough liquidity that banks would be paying more than their intention. And that could basically negate the entire point of the interest rate cuts in the first place. Now, I know this is like real minutia. This is like literally the plumbing of the financial system. But this stuff matters. I think a lot of people have learned over the last couple of decades that the stuff that you usually don't see going on in the financial system often carries big, considerable impacts on the rest of the economy and for normal people like you and me who normally have nothing to do with this.

18:00Now, again, the official view here is saying that they are just doing this technical thing. They're trying to ease liquidity pressure and they don't want any stress in the money markets, making sure that the wheels of the financial system keep turning. Of course, there are more skeptical views out there. Most notably, you know, if you guys know who Michael Burry is of the big short fame. He's been saying that, I don't know if this is really as innocuous as it seems. He's basically pointing out that it's just another piece of evidence that the economy is more dependent on the Fed than ever, that they need the Fed to essentially be micromanaging the economy in order for it to stay afloat.

18:43Because what they're saying about the stress in the market is that if they didn't do this, if they didn't start buying these treasuries, and it's a lot, It's$40 billion of treasury. So it's not an insignificant amount of money. If they didn't do this, then rates would go up and that could negatively impact the stock market. It could negatively impact short term interest rates. Now, I tend to take them at their word for now that they are just trying to make sure that the policies are working in the way that they do. But the reason that I am bringing this up is because I have said before on this show that I think that there is a chance.

19:21I don't know if it's the most probable chance, but that there is a chance that the Fed will start buying long dated treasuries or mortgage backed securities again. They have not said that they are going to do that. They have said that they are not going to do that. But as housing affordability becomes more and more in focus, and if there is more stress in the financial system, if the economy starts to falter, if we start to see the labor market really start to deteriorate, which, by the way, the Fed yesterday said that they thought government jobs numbers are being overestimated by 60 ,000 per month.

19:55So maybe the labor market isn't as good as they are saying that it is. If all these things happen, the Fed, the president, everyone, the Treasury might start looking for ways to improve housing affordability, stimulate the economy in new ways that don't have to do with just lowering the federal funds rate and buying mortgage-backed securities and buying long-dated treasuries might be on the table. This is one step closer to that. I don't think we're close to it. Don't get me wrong. But to me, the fact that they no longer are doing quantitative tidying and they are starting to add to their balance sheet, this is a big shift in policy.

20:29They've been selling things off their balance sheet for years. Now they are adding to it again. So it just sort of paves the way for more ways to add to their balance sheet in the terms of long-dated treasuries and mortgage-backed securities. And the reason I'm telling you that is because that would really bring down mortgage rates. That is not like the federal funds rate where it's like, oh, this kind of has this indirect long tail way of impacting mortgage rates. If the Fed starts buying long dated treasuries or mortgage backed securities, you will see mortgage rates come down. That could be the thing that drives it down below 6%.

21:01That could drive it down to the low fives. If they go crazy, which I doubt they will, it could go into the fours. So that is the thing to watch for when you see these Fed meetings. It's a long explanation, but I really do think it's important here because to me, this is kind of the X factor for 2026. I'm not saying it's likely to happen, but I think there is a chance that it happens. And it's something you're going to want to know about if it happens, because if this does ultimately bear out, it's going to change the housing market very fundamentally. Demand is going to go up. We'll probably see supply increases.

21:33Home sales volume is going to go up. Some people think this could really send us into crazy appreciation. I don't necessarily think that, but this would be a major shift and they are taking a step towards it. So this is something we are going to keep an eye on, on the market for the next year or indefinitely. And I wanted to give you this explanation of what's going on here so that when we talk about it, you have the context to understand why this really, really matters for the housing market. I would say definitely more than what's going on with the federal funds rate. This is the real news we need to watch for from the Fed.

22:06Yes or no. Are they going to start quantitative easing again? I don't think it's yet like a 50-50 chance. It's not that probable. But that probability, in my mind, just went up yesterday. That's what we got for the Fed News. Hopefully, you guys understand that there's a lot going on here. Even though mortgage rates didn't move that much, there's a lot going on behind the scenes that tells us that we could be in store for more changes in 2026. We are going to take one more quick break. But when we come back, we're going to talk about some new inventory and housing affordability data that we have.

22:37It gives us some indications about which markets are going to be hot and which ones might struggle in 2026. We'll be right back. Your rentals are insured. Your business may not be. Because once you're running deals through an LLC, managing properties, hiring contractors, or working with clients, you're not just owning property anymore. You're running a business. And businesses come with opinions, paperwork, and the occasional lawsuit-shaped surprise. Landlord insurance handles the building. It doesn't handle professional mistakes, workers' comp claims, or cyber fraud. That's where Next comes in.

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