Hey Friends! 

Here’s a personal breakdown of this week’s financial news, including the latest interest rate adjustments, inflation trends, and market events that are shaping the economic landscape. Let’s dive into what’s going on and how it could affect us all, from mortgage rates to holiday spending.

The Federal Reserve’s Rate Cut – What It Means

This week, the Federal Reserve cut interest rates by 25 basis points, setting the target range at 4.5% to 4.75%. This follows a larger 50-basis-point cut back in September. Fed Chair Jerome Powell shared that while inflation progress has been gradual, it’s moving closer to the Fed’s goals. He also noted that this “restrictive policy” stance is in place to keep inflation under control, despite the rate cut.

Inflation Check: Core PCE inflation for September was at 2.7% year-over-year, getting closer to the Fed’s 2% target. Home prices also saw a slight moderation; they’re still increasing, but at a more sustainable pace—CoreLogic reported a 3.4% increase year-over-year for September.

Rising Mortgage Rates Despite Fed Cuts

Although the Fed cut its rate by a total of 0.75%, mortgage rates have actually risen since September. Currently, the average 30-year mortgage rate is hovering around 7.03%, and this rise has led to a dip in mortgage applications for purchase loans. It’s a reminder that while Fed rate cuts can influence the economy, they don’t always directly lower mortgage rates.

Key Events to Watch This Week

Here are some upcoming events that could impact markets and rates:

• OPEC Monthly Report – Tuesday
• October CPI Data – Wednesday
  Expected: Headline CPI at 0.2% (annual 2.6%), Core CPI at 0.3% (annual 3.4%)
• Mortgage Applications – Wednesday
• October PPI Data – Thursday
• Fed Chair Powell Speaks – Thursday (always an interesting watch for market insights)
• Initial Jobless Claims – Thursday
• October Retail Sales – Friday
• 12 Fed Speakers Throughout the Week

Why This Data Matters

The October CPI report on Wednesday is a big one to watch. This will show us how inflation is tracking and can give us insight into where mortgage rates might be headed. If inflation comes in as expected or below, we might see a drop in bond yields, which could help bring mortgage rates down. But if it’s higher than expected, it could push rates up further.

Powell’s speech on Thursday and the PPI report will also give us some clues about the Fed’s view on economic stability and future policy moves. If inflation isn’t under control, the Fed could potentially slow down rate cuts or even pause them.

The Trump Policy and Market Reactions

One of the big economic shifts right now is Donald Trump’s proposed policies, which include high tariffs on imports, mass deportations, and tax cuts. Here’s what they could mean for us:

1. Higher Prices: Proposed tariffs on Chinese goods (up to 60%) and other imports (10%-20%) could increase costs for consumers, as these expenses get passed down.
2. Labor Shortages and Food Prices: Mass deportations could hit industries like agriculture, causing potential labor shortages and increasing food costs.
3. Rising Consumer Costs: Local manufacturers may raise prices due to increased demand and decreased competition.

This economic shift is a big one, especially as we look at the possibility of tariffs as a replacement for federal income taxes. Removing federal income taxes sounds great on paper, but the trade-off could mean higher prices for everyday goods due to tariffs on imported products.

Housing Market Resilience Amid Inflation

Historically, real estate has been a hedge against inflation, and despite high inflation and mortgage rates, home prices have been holding strong. Here’s a bit of a history lesson to see how inflation impacts home prices:

• 1970s Stagflation: During high inflation, nominal home prices doubled despite high rates.
• 2000s Housing Boom: Home prices grew 7%-10% yearly during moderate inflation, fueled by easy credit.
• Post-2020 Pandemic: Inflation spiked post-pandemic, with home prices increasing by 15%-20% annually due to a supply-demand imbalance and low rates.

While inflation can push home prices up, other factors like high interest rates can balance things out, keeping growth slower. With so many buyers on the sidelines and limited housing supply, home prices are likely to stay strong for now. Waiting for prices to drop significantly could be a long wait unless there’s a drastic economic downturn.

Holiday Spending and Credit Card Debt

The holiday season is just around the corner, and spending is expected to go up—by a lot. Americans are projected to spend over $200 billion on holiday gifts this year, with the average person spending around $925. Add travel into the mix, and this holiday season could bring a big bump in credit card debt.

Here’s where we stand now:

• 28% of credit card users are still paying off debt from last year’s holidays.
• Credit card balances are up 20% compared to two years ago.

My advice? Consider giving thoughtful, low-cost gifts to avoid piling on more debt this season!

Labor Market Slowing but Still Holding Strong

The U.S. labor market added 12,000 jobs in October, the lowest monthly gain since late 2020. However, the unemployment rate held steady at 4.1%, which is below the historical average of 5.7%. Job openings have decreased, but wages continue to grow at a healthy rate of 4% annually.

With the labor market cooling, we could see the Fed’s rate decisions impacted. A slowing job market could lead to lower mortgage rates if the Fed sees enough room to ease rates further.

Final Takeaways

We’re in a unique period where both inflation and interest rates remain high, yet the housing market continues to stay resilient. Add to this a holiday season of big spending and Trump’s potential policy changes, and we have quite an economic mix going into the end of the year.

Whether you’re looking to buy a home, manage credit card debt, or just stay updated, it’s a great time to stay informed and make thoughtful financial decisions.

Questions or thoughts on any of these points? Let’s chat—I'm here to help you navigate it all!