Fed Moves … Likely Rate Cuts

In last month’s issue, I recommended … “My take ... let’s sit tight through Q1 before deciding on planning alternatives.” Much of that caution was based on anyone’s guess where the economy, including interest rates, may evolve in an election year.

As it turned out, the expectation of a March rate cut by the Fed didn’t happen … and the prevailing median projection from all Fed officials remains at three cuts in 2024, albeit with reluctance on their part to confirm the timing.

Here’s what led to the decision for no rate reduction in March:

• U.S. inflation pressures eased in January, but the decline was less than expected.
• CPI for January improved from December’s tally of 3.4% to 3.1% … still above a forecast of 2.9%.
• Inflation edged 0.3% higher, matching December’s gain.
• Core inflation came in at nearly double the Fed’s target of 2%.
• The 10-year Treasury yield added 15 basis points to 4.32%.

These stats are not cause for major concern as economic data and markets never move in linear fashion. Certainly, I don’t read it as precursor to a renewed inflationary trend.

Some Comparative Rate Histories for Residential Landlords to Consider

I’m convinced that there will be future rate cuts and that mortgage rates should drop close to 6% by the end of the year. To put that in perspective, let’s look at some historical data that tracks the relationship among the 10 Year Treasury, 30 Year Mortgage and Inflation rates.

Why? Because the irregularity of these numbers in the last two or three years often creates a skewed perception of what residential investors may anticipate. The source for the following is the research firm, Macrotrends.

If you choose to seek more detail, you may click on the links for interactive charts for the three categories above. Alternatively, you may want to go directly to the comparative rates summary below to review.

10 Year Treasury Rate - Interactive Historical Chart

The 10-year treasury is the benchmark used to decide mortgage rates across the U.S.

30 Year Fixed Mortgage Rate – Interactive Historical Chart

Interactive historical chart showing the 30-year fixed rate mortgage average in the United States since 1971.

 Historical Inflation Rate by Year

Interactive chart showing the annual rate of inflation in the United States as measured by the Consumer Price Index back to 1914.

Comparative Rates Summary & Commentary

You’ll agree that over the last 3 decades there has been a uniform relationship among the three rate categories. That’s in sharp contrast to the highlighted entries above. Bottom-line … things are settling down and while rate increases may be limited in number and amounts, 2024 looks to be a “normal” year.

Takeaways

Admittedly, there are “wild card” factors that may affect the economy in upcoming months … the 2024 elections; Fed moves; geopolitical developments, artificial intelligence to name several major items. That said, I’m of the opinion that wage inflation, job growth and increased spending power will continue this year and into the next.  

That means residential landlords like you and me are likely to experience an expanded tenant pool of workers enjoying sizable bumps in income. Results: Enhancements in rental income, tenant quality and appreciation in asset values.

Whether you are a DIY landlord or someone that needs property management services … or a combo of the two, KRS Holdings is here to help! 

Give us a call or drop an email. We’ll respond promptly and

relieve your stress by evaluating your property management options.