Danger Zone
My motivation for this week’s article is Kenny Loggins’ 1986 hit “Danger Zone” and how the Fed may very well be flying us into an Economic Danger Zone.
Several weeks ago, the Federal Reserve once again cut the Federal Funds Rate by another .25% for a total of 1% in cuts since September despite stating they were not going to make cuts until inflation reached the 2% mark (currently, we are at 2.7% for the year). I stated at the beginning of the year that a 2% target was virtually mathematically impossible to accomplish in 2024, and I guess our friends at the Federal Reserve agreed, and thus the cuts. On a side note… mortgage rates have surged higher by almost one full percent during the same time frame. But at the same time, according to some recent Macro Economic Data, the economy continues to jug along at a reasonable pace. So, why the cuts? Maybe it’s that they are finally looking at some parts of the economy that are not doing so well that tend to have a major impact on the overall economy. Things like:
- Consumer spending continues to grow, but so does their debt, which is currently at record levels.
- The U.S. deficit continues to grow at record levels.
- Housing sales are running at 30-year lows (considered a huge part of a growing economy).
The classic economic thought is lowering rates tends to stimulate the economy, and thus, prices rise, which adds to overall inflation. However, the FED has made some significant cuts in a relatively short period of time. Do they know something we do not, or are they flying us into the Danger Zone?
Remember… the BEST RATE… IS A LOCKED RATE… with a float down… ask me about our program that allows you to lock your rate and then float down if rates move lower.
Make sure you (or your buyer) get pre-approved before looking at homes so we can determine if you are looking in the correct price range and have you armed to submit an offer with a pre-approval letter!
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Blog post date: Thursday, January 2, 2025
