Former Bridgewater CIO says Fed rate cuts won’t necessarily boost housing market

[The concept of real estate market growth. The increase in housing prices. Rising prices for utilities. Increased interest in mortgage and rising interest rates on mortgages. Rent increase. Dollars]
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Former Bridgewater chief investment strategist Rebecca Patterson cautioned that Federal Reserve rate cuts alone won’t solve the housing market’s challenges.

In an interview with CNBC, Patterson explained that while rate cuts generally support growth and add liquidity, the relationship between Fed policy and mortgage rates is more complex than many believe.

“If the Fed cuts rates, all else equal, that supports growth, it puts liquidity in the market, that might help the consumer to buy a home. But you’ve got a couple other challenges [https://seekingalpha.com/news/4487063-u-s-housing-affordability-surpasses-2008-crisis-levels-creative-planning-s-charlie-bilello] here,” she cautioned, highlighted several factors complicating the housing market outlook, including input costs affected by tariffs, labor costs impacted by immigration policies, and skyrocketing insurance premiums.

Patterson emphasized that mortgage rates are primarily determined by 10-year Treasury yields (US10Y [https://seekingalpha.com/symbol/US10Y]) rather than the Fed funds rate.

She suggested that today’s economic environment differs significantly from the past two decades of low inflation.

“If we’re in a more inflationary regime, where do you want to keep your money to be safe? Equities are actually a better inflation hedge than bonds, all else equal,” Patterson explained. She added that bonds (US10Y [https://seekingalpha.com/symbol/US10Y]), (US2Y [https://seekingalpha.com/symbol/US2Y]), (US5Y [https://seekingalpha.com/symbol/US5Y]) may not respond to Fed cuts in the same way they did during the previous low-inflation period.

The U.S. 10-year yield (US10Y [https://seekingalpha.com/symbol/US10Y]) has declined 5.75% year-to-date, although risen almost 11% from a year ago. Also, the Treasury yield curve [https://seekingalpha.com/news/4486875-yield-curve-steepens-as-fed-policy-politics-and-treasury-supply-collide#hasComeFromMpArticle=false#source=section%3Amain_content%7Cbutton%3Abody_link%7Cfirst_level_url%3Anews] is starting to steepen, with both the 2-year/10-year and 10-year/30-year spreads widening.

Investors can follow how yields are trading across the entire curve here on Seeking Alpha’s bond page [https://seekingalpha.com/etfs-and-funds/etf-tables/bonds#hasComeFromMpArticle=false#source=section%3Amain_content%7Cbutton%3Abody_link%7Cfirst_level_url%3Anews].

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