What Does the Federal Reserve Rate Cut Mean for Builders?
The Federal Reserve on Wednesday cut interest rates for the first time since 2008. The quarter-percentage point reduction comes at a time of global economic slowdown and uncertainty in trade relations between the U.S. and its partners.
However, in a press release, the central bank stated that the “labor market remains strong and that economic activity has been rising at a moderate rate. Job gains have been solid, on average, in recent months, and the unemployment rate has remained low.”
The reduction will make it easier for businesses to take out loans to finance large projects, which could provide a boon to the construction and industrial markets.
The ongoing trade war with China still makes these industries volatile to an extent, but this decision should provide relief, at least in the near term.
“Still, even if the trade environment doesn’t change, a rate cut will still be a benefit to the sector. At minimum, it should help industrial stocks keep up with the market in the second half of 2019,” Al Root wrote in an article for Barron’s. “And a cut might even help push industrial valuation multiples back toward the broader market, giving the industrial sector a little extra boost.”
Commercial developers will find more profit through the lower costs of borrowing money, but the biggest winners in the construction industry will be those in single-family homes, according to Keith Larsen of therealdeal.com
Eight Fed officials voted in favor of lowering the federal funds rate, including Chair Jerome Powell. Two officials dissented.