Steve Rattner: Fed’s rate cuts likely to send mortgage rates lower

So let's talk about that big sign of where the economy is now, where it's headed in a long anticipated move. The Federal Reserve cut its target interest rate yesterday for the first time since 2020. The Fed slashed half a percentage point off those benchmark rates. That's a short term borrowing costs for banks, but also affects mortgages, auto loans and credit cards. After announcing the cut, the central bank also forecasted lowering rates by another half point before the end of the year. Let's bring in former Treasury official and Morning Joe economic analyst Steve Ratner. Steve, good morning. Here's the front page of the Wall Street Journal this morning says that the Fed goes big with half point rate cut. We're talking beforehand. This sounds like a big number and it is, but they were signaling that it might go from not a quarter but to a half in the in the days before this. Yeah, normally it would be a quarter for this first step in a rate cut cycle. That's traditionally what's happened outside of some crisis. And the fact that they went to 50 basis point says two things. One that they had the room to do it. Inflation has come way down and it's down to about 2.5%. And secondly, that they kind of needed to do it because the labor market is softening. You can see here what the march of rates going up to the top of the mountain and then you can see them starting to come down and what the Fed also, as you said, projected or more rate cuts this year, more rate cuts next year and gradually rates getting back to some somewhat more normal level. And on the right side, you can see mortgage costs have already rolled over, and that's really important. Housing costs have been a big factor in this election, and it's important to show the American people that there's hope on mortgage costs. So, Stephen, if it goes another half point by the end of the year, as predicted, we're talking about a full point in the space of about four months or so. So just in layman's term, what are the practical implications of that for people watching the show today? Well, the practical implications are lower interest costs, as you said in your lead in on mortgages, credit cards and all that sort of stuff. But the real implications are that it gives a little bit more stimulus to the economy, provides a little bit more of a lift, but it also signals something important, which is that we have gotten the inflation under control and inflation is now down to 2.5%. Fed's target is 2%, so we're not that far from it. And it does show that, and you can see that right up there. We have on the right side of the inflation, you can see the inflation mountain going up the mountain coming, coming down the mountain. And so the Fed has the scope now to do this, and it will do it. And so it's a big political lift for, I think, the Harris campaign. I think they're in a position now, uh, as the president is going, President Biden is going to say at the Economic Club of Washington today, not he's gonna be careful not to declare victory, but he's gonna say we've made a lot of progress and it looks pretty good ahead. We're also growing at 2%. We're adding jobs. And here's a fun fact for you. GDP under President Biden. Even if you strip out Covid move slightly faster than it did under Trump loves to run around and talk about his great economy. Actually, it was a little bit better under Biden. So we've heard this term soft landing for the last couple of years. The delicate dance that the feds have to do to avoid a recession effectively. Does it look like our economy has achieved that or will achieve that? Remarkably, it does. And this is almost without precedent. There's almost no example in history where the Fed has had to go in and attack inflation and has managed to lick it without without having a recession. And so, yes, the percentage of economists who think that could be a recession in the next year, likely to be a recession next year has gone from peak of 65% down to 35%. And so we are basically in a pretty and it's pretty strong environment. I want to make one other point because Trump, of course, is attacking the Fed and saying it's political and pal and blah, blah. I'm not sure that Trump understands how the Fed makes rate decisions. Rate decisions were made by a committee of 12 people from all over the country appointed by various presidents by various local Federal Reserve banks. It is not Jay Powell's decision, and you had an 11 to 1 decision yesterday in favor of cutting rates. So this is the Fed doing its job, not the Fed playing politics. As always, Donald Trump suggesting something that doesn't cut his way. Perhaps there must be something corrupt or fishy going on injecting that poison into the economy quickly. It's something else. He said before he suggested something was up with this was that this is a sign. This rate cut of a half a point that the economy is not doing well. What's the truth about that? The job? The job situation has been slowing down a bit. Unemployment is up to about 4.3% or thereabouts, but that's still a pretty low number. The economy is slowing, but it's still positive where the Fed also projected and the numbers are showing GDP growth of around 2%. It's not a barn on fire, but it's not. It's not terrible. It's a very steady, solid growth rate. Obviously, it is hard to predict the economy, but it does not suggest the economy is in deep trouble. As I said, recession predictions have been coming down, down, down. Steve Ratner always bringing the truth. Steve, thanks so much. We appreciate it.