Last month, the Federal Reserve received the kind of data it’s been looking for.
Inflation cooled and unemployment rose — a sign the jobs market may be normalizing.
Markets believe the indicators will persuade the central bank to finally cut interest rates.
In the “normal” scenario, the Fed cuts rates by 50 basis points each quarter — 25 basis points per meeting. In the second quarter of 2025 rates would fall to 3.75 percent, and 1.75 percent a year later.
That’s a rosy outcome for borrowers.
The worst outcome for borrowers would be if the Fed holds to its “higher-for-longer” strategy.
In that reality, inflation stays sticky, employment high, the economy strong, keeping Fed Chair Jay Powell conservative with cuts. Rates are pared to 4.5 percent in mid-2025 and 3.5 percent by mid-2026.
Another possible scenario is a double-edged sword.
Should the economy weather some sort of shock, cuts as high as 100 basis points per quarter — 50 basis points at each Fed meeting — “would be quite plausible.” In that instance, the Fed funds rate drops to 0.25 percent by the second quarter of 2026.
For the Boston condo for sale market borrowers, such a steep reduction would be a lifesaver.
But it would come with bad news, too. Such aggressive cuts would only happen if the Fed were reacting to a possible recession.
The bottom line: The next three months are pivotal for the Boston condo for sale market.
The Fed’s next steps are still a big unknown. It’s possible Powell will give more insight this week at the Kansas City Fed’s annual conference in Jackson Hole, Wyoming. At least, economists are hoping for that.
Peace Be with You
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