banking on more uncertainty The Federal Reserve cut its key rate by another 25 basis points in December, but expects fewer cuts next year as a result of higher inflation and greater policy uncertainty. This would be a headwind to a more meaningful recovery in housing market activity.
Mexico and another $419 billion from Canada . Mexico is a major exporter of manufactured goods to the U.S., including automobiles, while Canada is a major exporter of energy, which is an input cost to just about every facet of the U.S. economy. Canada exported an average of 4.4 million barrels of oil per day to the U.S. in 2023, equivalent to about 22% of average daily consumption (20.2 million barrels per day). Whether or not Trump follows through with his proposed tariffs, higher inflation and higher interest rates would be a headwind to an already depressed housing market. There were 1,864 closed MLS sales in King County in November, which was 25% below the prior 10-year November average of 2,493. Though sales through the first 11 months of 2024 (23,263) have already surpassed last year’s total (22,552, which was a decade low), they were still 24% below the prior 10- year average for the same 11 month period (30,768). Further easing of monetary policy and more significant declines in Treasury yields will be needed to unlock housing market activity more meaningfully. For now, however, their trajectory is more uncertain.
On December 18th, the Federal Reserve used its final interest rate decision of the year to reduce the Fed funds rate by another 25 basis points, bringing it to the 4.25-4.50% range. With that, the Fed has cut its key policy rate at three consecutive meetings and by a total of 100 basis points since September, ending a two and a half year quest to bring down the highest inflation the country has seen in more than four decades. But for those hoping for this trend of steady declines to continue into the new year, the Fed doesn’t exactly see that playing out (anymore). The Fed’s dot plot, which summarizes the outlook for the Fed funds rate among the Bank’s 19-member Federal Open Market Committee (FOMC), now projects 50 basis points worth of cuts in 2025. Just three months prior at the September meeting, that same projection was 100 basis points. The reason for fewer cuts ultimately boils down to a resilient economy and an expectation that it will take longer to get inflation back to its 2.0% target than previously thought. Strong consumption and elevated
government spending continue to buoy the economy and the FOMC now projects GDP growth to finish this year at 2.5% (from a forecast of 2.0% back in September), followed by 2.1% in 2025 (from 2.0% previously). Meanwhile, inflation is expected to be 2.5% next year (from 2.1% previously). When pressed on whether tariffs were a factor in the Fed’s higher inflation forecast, Jerome Powell (the Federal Reserve chair) stated that policy uncertainty may have led to higher uncertainty around inflation for some committee members and that “it’s common-sense thinking that when the path is uncertain, you go a little slower.” Since our last Seattle rennie review, president- elect Donald Trump has stepped up his tariff talk, threatening a 25% levy on all imports from Canada and Mexico. In theory, if said tariffs were implemented, they would be inflationary and would raise the cost of a wide range of goods for everyday Americans.
In 2023, the United States imported $475 billion worth of goods and services from
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