Federal Reserve policymakers discussed the risk of a “substantial deterioration” in the housing market during their latest meeting to set interest rate policy, according to newly released minutes.
During the September meeting, members of the Federal Open Markets Committee (FOMC) voted 11-1 for a quarter-point rate cut, with newly appointed Gov. Stephen Miran as the lone dissenter, instead calling for a larger half-point cut.
Minutes from the meeting released on Wednesday show that Fed Chair Jerome Powell and other members of the panel discussed a wide range of economic factors as they considered appropriate rate policy, including ongoing issues in the housing market.
“Several participants noted continued weakness in the housing market, and a couple of participants mentioned the possibility of a more substantial deterioration in the housing market as a downside risk to economic activity,” the summary stated.
Home sales have hovered at multi-decade lows over the past three years despite the relative strength of the overall economy, as elevated mortgage rates and record-high home prices combined to push homes out of reach for many families.
“The housing market has been curiously weak in recent years,” says Realtor.com Chief Economist Danielle Hale. “Amid the ongoing lack of affordability in housing, there is concern that we may see demand weaken for new home sales, which would have important effects on overall economic activity and employment in the housing sector.”
Although the Fed doesn’t set mortgage rates directly, those rates tend to move based on expectations about future monetary policy, making the housing sector especially sensitive to changes in Fed rates.
“While Fed rate cuts could in theory stimulate housing demand in the very interest-rate sensitive sector, it’s worth noting that the Fed’s policy lever is a direct adjustment on short-term rates, not longer term rates like mortgage rates,” says Hale. “As a result, it’s possible that the Fed can cut its policy rate and longer-term interest rates such as mortgage rates can increase, as we saw in late 2024 and early 2025.”
The Fed uses higher interest rates to combat inflation, and lower rates to stimulate the labor market in line with its dual mandate of price stability and maximum employment.
The September meeting required a delicate balancing act from the Fed, with inflation still elevated and the labor market sounding alarm bells, putting the two sides of the mandate in tension.
FOMC minutes show policymakers grappling with policy decision
The meeting minutes offer new insights into the various opinions FOMC members hold on monetary policy, a topic that has become unusually politically charged in recent months.
President Donald Trump, who campaigned in 2024 on making homes more affordable for everyday Americans, has intensely pressured the Fed to lower rates since taking office, saying it would stimulate the housing market.
Miran, Trump’s recent appointee to the Fed’s Board of Governors, has called for dramatic rate cuts, and the newly released minutes show that at September’s meeting he argued that the so-called “neutral” interest rate has fallen due to factors such as increased tariff revenues and changes in immigration policy.
The neutral rate is the interest rate that neither stimulates additional spending and investment, nor restricts the economy to tame inflation. Exactly what that rate is depends on a variety of factors, and is subject to debate.
In public comments, Miran has said he believes the neutral rate is close to 2%, far below the Fed’s current range of 4% to 4.25%, and that he favors moving quickly toward 2%.
But the new September meeting minutes show that other FOMC members favored leaving the Fed’s policy rate unchanged over concerns about lingering inflation, although in the final vote they all agreed to the cut.
“A few participants stated there was merit in keeping the federal funds rate unchanged at this meeting or that they could have supported such a decision,” the summary states. “These participants noted that progress toward the Committee’s 2% inflation objective had stalled this year as inflation readings increased and expressed concern that longer-term inflation expectations may rise if inflation does not return to its objective in a timely manner.”
The economist Hale notes that the meeting minutes show a still hefty amount of concern for inflation among FOMC members, perhaps more than a casual observer might have picked up on from seeing the rate cut.
“This is more evidence that the nature of the September rate cut was an ‘insurance’ move and may not mean every-meeting rate cuts in 2025, even though a large majority of investors have priced this in,” she says. “Put simply, I think these minutes are more hawkish in tone than investors had anticipated.”
Following the release of the minutes, the market-implied probably of two further rate cuts this year fell slightly to 79.7%, down from 82% a day earlier, according to the CME Group’s FedWatch tool.
Yields on 10-year Treasury notes, a key indicator for mortgage rates, were little changed by the closing bell.