The rate cut by the Fed in September 2024 appears to be not much more than another performative song and dance. With many people, particularly in the real estate world, holding on to the idea that the rate cuts will stimulate buyers, the reality is not much will change, except for the worse.
One can call the rate cut nothing more than a mere utterance from the Fed because it gives a message of assurance to the market and the public that it is doing something to stimulate the economy. Therein also lies a symbolic action likely to have psychological consequences for the players in the market as far as momentary turmoil and short-term asset price inflation are concerned.
However, the Fed’s rate cut didn’t grapple with the root causes of economic problems. The Fed’s manipulation of interest rates distort market signals, leading to malinvestments and misallocations of resources. In this case, by cutting the rates, the Fed tries to artificially stir the economy, which merely prolongs the boom-bust cycle.
In the housing market sphere, we are likely to see a very minimum effect here. Though many realtors and home buyers may see this as a glimmer of hope in a stagnant time, the results thus far indicate very little improvement to be seen from the Fed’s rate cut. Supposedly, their dream rate cut did very little to improve the scenario when structural issues in housing, local infrastructure failures, and high prices and low supply are still very much in play. It certainly cements the theory that the set of monetary policy tools within the Fed is somewhat inefficient to cure the chronic flaws in the economic system. It’s as if throwing freshly-inflated money at problems really won’t solve them after all.
It is from this perspective that one can look at the uncertainty and indeterminacy of economic outcomes. These types of gambles come at a price and it is the public who pays them. The real gamble is that the rate cut by the Fed may not improve things at all, even minimally. Instead these actions bring more malinvestment, exacerbating consequences on the pre-existing imbalances in the economy. Further, the rate cut by the Fed may also be viewed as a potential catalyst for even higher inflation because it injects more liquidity into the economy.
That is to say, the September 2024 rate cut by the Fed, despite being a carefully-crafted piece of performance art, has been rather ineffective in easing any problems in the economy. As the cut distorts market signals and perpetuates malinvestments, it may cause eventual adverse unintended eventual consequences, the likelihood of higher price inflation being one of them.
As continually noted, they cannot artificially stimulate a self-sustaining economic recovery. This rate cut has done very little other than send out a “bat-signal” of artificial hope, which will inevitably lead to another round of real world negative consequences, mainly exacerbating the very problems it purports to solve.
