The article discusses the current state of the Federal Reserve's monetary policy under Jerome Powell, noting that the markets have not perceived it as accommodative. Speculation arises about a potential new 'shadow' Fed president who could prompt a more aggressive bond market response. Morgan Stanley forecasts seven rate cuts in 2026, suggesting a dovish shift in Fed policy. This change could bolster the struggling housing market and align with previous statements made by Powell regarding inflation-adjusted rates, presenting a more optimistic outlook for consumers and the economy.
Now, at first glance, that sounds like a very bearish economic take on the economy to have so many rate cuts in the forecast.
The Fed hasn't shown any interest in boosting housing demand, even though housing permits and starts have been in a recession for some time now.
With the Fed taking a more dovish stance, the rate cuts, which would take us down to 2.5%-2.75%, don't seem crazy at all.
This would be a significant shift, as the Fed has largely ignored the weakness in housing for years, and this new policy would make many American consumers happy.
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