Rate Cuts Are Coming

The Fed Needs to Cut

July’s employment report was a disaster.

73,000 jobs created when economists expected 175,000. The unemployment rate has quietly crept from 3.5% to 4.2%.

This puts Fed Chair Jerome Powell in an awkward position. Keep rates at 4.25-4.50% and risk triggering the recession they’ve tried to avoid. Cut too aggressively and risk reigniting inflation just as Americans started believing it was beaten (lol).

The Fed seems to have chosen door number three: a calculated retreat starting September 18th.

What the Heck is Coming and When:

September 11 - CPI Report (Must show inflation below 3%)
If inflation surprises higher, everything changes

September 18 - First Cut [86.6% probability]
0.25% reduction, mortgage rates begin falling within days

October 4 - Jobs Report
Will confirm or challenge the Fed’s decision

December 11 - Second Cut [71% probability]
Another 0.25%, pushing mortgages toward 6%

March 2026 - The Acceleration Point
Historical patterns suggest 3rd and 4th cuts, rates hit 3.5-3.75%

Practical Reality

Your Mortgage: $400ish Monthly Difference on 400k

Current reality: 30-year mortgages hover around 6.6%
By spring 2026: Could drop to 5.5-6%

Napklin math on a $400k home:

• Today’s payment: $2,661/month

• After cuts: $2,271/month

• Your savings: $390ish/month

That $390 monthly savings equals around $70k in additional buying power. For millions of Americans priced out of homeownership right now, this is the difference between renting and buying for a load of folks

HYSA: 5% Yield is about to disappear

If you’re celebrating that 5.2% high-yield savings rate, enjoy it while it lasts. Here’s the timeline:

• Today: 5.0-5.2% at most online banks

• By December: 4.2-4.5%

• By March 2026: 3.5-3.8%

On $50,000 in savings, that’s a drop from $2,600 to $1,750 in annual interest income. The window to lock in today’s rates closes September 1st.

Jobs: The Good News with a Delay

Rate cuts typically boost hiring, but there’s a 6-12 month lag. Companies need time to adjust plans, approve budgets, and execute hiring. The pattern is predictable:

• Months 1-6: Continued weakness as the economy adjusts

• Months 6-12: Hiring begins recovering

• Year 2: Full employment recovery

The Fed is cutting because jobs are weak, so expect choppy waters before smooth sailing.

Three Scenarios Forward

Scenario 1: Inflation Surprise

If August CPI comes in above 3%, the Fed might skip September entirely. Energy prices and used car data are early warning signals.

Scenario 2: Employment Cliff

If unemployment spikes to 4.5%+, expect emergency 0.50% cuts. With Trump hammering Powell and it being the practical time to cut outside of external pressures, an emergency cut wouldn’t be out of the ordinary.

Scenario 3: The Ideal Path

Gradual cuts, improving economy, controlled inflation. Boring but profitable.

Why This Time Is Different (And Why It Isn’t)

Unlike 2008 (financial crisis) or 2020 (pandemic), this is a “soft landing” attempt. Companies have strong balance sheets, banks are well-capitalized, and there’s no systemic crisis.

This resembles 1995, when the Fed cut rates preventively and successfully avoided recession. That cycle saw:

• 3 cuts totaling 75 basis points

• No recession

• Stock market gained 34.5%

• Housing remained stable

However, and this is a big however…we’re coming off the fastest rate-hiking cycle in 40 years. The economy has more leverage, making it more sensitive to rate changes. Small cuts today have much bigger impacts than large cuts did decades ago.