The recent rate cut has sparked debate over whether lowering rates further will help or harm the economy, especially with inflation steady around 2.7–2.8%. Analysts like Goldman Sachs expect gradual cuts through late 2025 and mid-2026, potentially bringing the Fed funds rate down to around 3.125%. This shift would ease the refinancing burden on trillions in national debt while also benefiting banks through reduced capital costs. Although mortgage rates are unlikely to return to pandemic-era lows, as Doug and Lee discuss, even a drop to around 4% could unlock the housing market and stimulate broader economic activity.
Doug McIntyre: So, Lee, we’ve had a rate cut. Now there’s a debate. Should you cut ’em or shouldn’t you cut ’em? Mixed with the fact that the president may have de facto control over the Fed fairly soon, and he’s gonna add something to the mix if he gets in there. And that is “we’re gonna cut rates to help the economy and make everything boom.” Whether that’s makes sense or not, I don’t know, but if they get ahold of it, rates are going to drop rapidly fast.
Lee Jackson: And most of the people on Wall Street, it’s the same hedge. It’s like, well, they have to be careful because of inflation. And that’s true. But like we’ve discussed, inflation’s kinda locked in 2.7, 2.8, you know, in that range. And we still have the highest central bank rates of any, you know, G10 country. And I think you’re exactly right. I think Goldman Sachs thinks two more this year, in October and December of 25 basis points each, and then they think another 50 basis points next year ending in June of 2026. And that would take the base fed funds rate down to three to three and a quarter. So the median rate at that level would be three and an eighth or 3.125. And that will have a substantial impact on the nation, the home building, but most importantly we have like 9 trillion of debt coming due or some huge number that they have to, they if, if they can redo that debt at lower interest rates, that’ll take the burden down. And that’s one of the big things the president’s thinking about.
Doug McIntyre: Well, there’s another part to this, and that is, I understand it could have other effects on the economy, but if you look at the housing market, this is the one thing that could unlock it.
Lee Jackson: Yeah. Yeah. Well, we’re not gonna see the 2.75 mortgage again.
Doug McIntyre: No, no, no. But I’m saying people were like sticker shocked at 7%. I mean, you know, it’s not gonna go that low, but even if it went to four, I think it would unlock a huge amount of the housing market.
Lee Jackson: Well, you know, if you chopped off, you know, remember it’s, it’s usually based on the 10 year yield anyway. It’s not really based on funds. I mean, fed funds, fed funds going down, helps banks more than anybody because then they can offer loans at a certain level and they’re getting their cost of capital down to, you know, three to three and an eighth. And so it benefits them the most. But, yeah, I think that, I think that they’ll probably go in October and then see, then that gives ’em another 60 days before the end of the year in the last meeting in December. So, you know, if they cut another 25 and you know, the, they were some on Wall Street, were going, “Oh, it’s gonna be 50 basis points. They could be bigger.” They’re not gonna do that, Powell’s not gonna do that. But I think they could stay on a course and if they do, it would be positive for the economy as a whole.
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