What the Fed Rate Cuts Mean for Housing and the Economy
After keeping rates steady through most of 2025, the Federal Reserve’s monetary policy committee (FOMC) voted at its September meeting to cut its key interest rate by 25 basis points, bringing the target federal funds rate down to 4.25%.
Fed Chair Jerome Powell called it a “risk management cut” — a move meant to guard against growing uncertainty, rather than a response to a clear economic downturn. The decision follows signs of a cooling job market and moderating inflation. Job growth has slowed, unemployment has edged up (though it remains low), and inflation, while still above target, has been relatively contained.
Markets expected the move, and much of the impact was already priced in. Mortgage rates, for example, have already dropped slightly, with the average 30-year fixed now at 6.35%, down 20 basis points over the past month. The 10-year Treasury yield barely moved after the Fed’s announcement, reflecting how little surprise the decision carried.
Impact on Housing
The rate cut will have a direct, beneficial impact on builders, especially those relying on acquisition, development, and construction (AD&C) loans. These loans are key to getting new homes built, particularly by private builders, who construct more than 60% of the country’s single-family homes. Lower borrowing costs for builders could help ease housing supply constraints across the country.
However, Powell acknowledged that the housing market remains weak and noted that many of the issues — such as high regulatory costs and a persistent housing shortage — can’t be solved by monetary policy alone. Still, the Fed’s actions should offer some relief on the financing side.
Slowing Economic Growth Ahead
The broader economic outlook points to slower growth moving forward. The Fed projects GDP will grow just 1.6% in 2025, with a slight increase in unemployment to around 4.5%. Inflation is expected to gradually decline, but the Fed doesn’t see its 2% target being met until 2028 — highlighting how persistent inflation pressures continue to be.
Overall, while this rate cut was expected, it signals a shift in tone. The Fed is opening the door to further easing, but as Powell emphasized, future moves will depend entirely on how the economic data evolve.
For more in-depth analysis about the rate cuts, read this Eye On Housing article from NAHB Chief Economist Dr. Robert Dietz.