Days ahead of the November meeting of the policy-setting Federal Open Market Committee, a pair of senators are pushing for the Federal Reserve to bring a 50-basis-point rate cut of its benchmark interest rate into fruition.
Sen. Elizabeth Warren, D-Mass., and Sen. John Hickenlooper, D-Colo., cited the housing market in urging the Fed to enact a second straight reduction of 0.5%, following the long-awaited cut that kicked off the lowering cycle in September. In calling for the big decrease, the lawmakers referenced the ongoing struggle of the housing market to generate traction due to housing affordability issues.
“Borrowing costs, and in turn housing costs, are still too high,” read a letter co-signed by Warren and Hickenlooper to Fed Chairman Jerome Powell. “As we tackle the housing affordability crisis across the United States, it is critical that we build more housing. Lowering interest rates is key to unlocking more supply: Rate cuts will lower the cost of capital, helping to tackle inflation by spurring more housing construction and consequently lowering housing prices.”
The letter also makes reference of the lock-in effect, in which current homeowners are reticent to leave their current homes (and the low interest rates their mortgages carry), keeping inventory low and driving prices up.
Warren and Hickenlooper noted that mortgage interest rates, which saw a period of decline leading up to and immediately after the September rate cut, are now back on the upswing. Another big cut, they argue, could reignite downward pressure.
“[Mortgage] rates have trended down to 6.08% in September 2024 but have subsequently rebounded to 6.54%. This recent, slight increase is likely because investors expect the Fed to now hold rates steady for the rest of the year, rather than continuing to cut. If the Fed moves forward with more rate cuts, housing prices and mortgage rates would thus also likely drop, allowing more families to achieve the American dream,” said the letter.
It’s not the first time Warren and Hickenlooper have been vocal about the federal funds rate. Since January, the two, joined by other lawmakers, have co-signed five letters to Powell and the central bank calling for rate cuts, and they called for a 75-basis-point cut in September (instead of the 50-basis-point cut that materialized).
