What to know about a possible rate cut this week

September 16, 2024

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(NEW YORK) — Borrowers have waited years for a sign of relief from high interest rates for everything from credit card loans to mortgages. The wait may come to an end this week.

Investors widely expect the Federal Reserve to cut interest rates at a meeting on Wednesday. The move would dial back the central bank’s benchmark rate from a 23-year high, reversing some of the rate hikes initiated three years ago in an effort to fight inflation.

Questions, however, remain about the size of the rate cut, what it means for borrowers and how it may impact the 2024 presidential race.

Experts spoke to ABC News about what to know ahead of the potential interest rate cut.

Why is the Fed expected to cut interest rates?

In 2021, the Fed began aggressively raising interest rates in an effort to bring inflation under control. The policy has largely succeeded. Inflation has slowed dramatically from a peak of about 9% in 2022, though it remains slightly higher than the Fed’s target of 2%.

Meanwhile, the job market has slowed. A weaker-than-expected jobs report in each of the last two months has stoked concern among some economists. The unemployment rate has ticked up this year from 3.7% to 4.2%.

Those trends have shifted the Fed’s focus away from controlling inflation and toward ensuring a healthy job market.

In theory, lower interest rates help stimulate economic activity and boost employment; higher interest rates slow economic performance and ease inflation.

“The Fed has been very much guided by data,” Anastassia Fedyk, a professor of finance at Haas Business School at the University of California Berkeley, told ABC News. “ Inflation numbers in the last few months have started looking good, and things are not looking so hot in terms of the jobs reports.”

What will the size of the rate cut be?

The chances of an interest rate cut at the Fed’s meeting next week are all but certain, according to the CME FedWatch Tool, a measure of market sentiment.

Market observers are divided nearly down the middle over whether the Fed will impose its typical cut of a quarter of a percentage point, or opt for a larger half-point cut. The tool estimates the probability of a quarter-point cut at 51% and the odds of a half-point cut at 49%.

“There is that much uncertainty because it seems not all Fed officials are of the same opinion,” Gregory Daco, chief economist at accounting firm EY, told ABC News.

Some Fed policymakers appear to prefer a gradual approach to rate cuts in light of easing inflation and a resilient, albeit weakened, labor market, Daco said. By contrast, others seem to favor a large initial cut that would help avert a more severe job market slowdown.

What would a rate cut mean for credit card fees, mortgage rates?

An interest rate cut would mark a major milestone as the Fed shifts toward a lowering of rates and an easing of costs for borrowers, experts said. Still, they added, the initial rate cut would not substantially lessen loan payments.

“In the grand scheme of things, it’s peanuts,” Daco said.

Nevertheless, some loan relief has already emerged in anticipation of a gradual lowering of interest rates over the coming months.

Mortgage rates fell last week to their lowest level since April 2023, Freddie Mac data showed. The 10-year treasury yield, which helps set the level of many consumer loans, has plummeted nearly a percentage point since July.

“This is a sign of a trend that’s going to start, but it’s going to take a lot longer and be milder than an immediate transition,” Fedyk said.

What would a rate cut mean for the November election?

Typically, lower interest rates make borrowing less expensive for businesses and consumers, propelling companies to invest in new projects and everyday people to stretch for bigger purchases. That all should help propel economic growth and buoy consumer optimism.

In turn, an economic surge could benefit the incumbent party, dispelling concern about a recession and improving the livelihoods of everyday people, some analysts previously told ABC News.

However, the benefits of a forthcoming rate cut could prove more limited, since rate moves take hold after a period of delay that can last months, analysts said.

The most recent Democratic presidential candidate who failed to win reelection, Jimmy Carter, lost his bid amid a historic series of rate hikes at the Fed.

A rate cut would deviate from the policy approach taken by the Fed prior to many recent presidential elections, a Reuters analysis found. Policy rates were left unchanged for six to 12 months before the 2020, 2016, 2012 and 2000 U.S. presidential elections, according to Reuters.

To be sure, the Fed says it bases its decisions on economic conditions and operates as an independent government body.

When asked about the 2024 election at a press conference in Washington, D.C., in December, Fed Chair Jerome Powell said, “We don’t think about politics.”

Jobs report blows past expectations, showing hiring surge

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(NEW YORK) — U.S. hiring surged in September, blowing past economist expectations and rebuking concern about weakness in the labor market. The fresh report marks one of the last major pieces of economic data before the presidential election.

Employers hired 254,000 workers last month, far exceeding economist expectations of 150,000 jobs added, U.S. Bureau of Labor Statistics data showed. The unemployment rate ticked down to 4.1%.

Weaker-than-expected jobs data in both July and August has stoked worry among some economists about the nation’s economic outlook.

Despite an overall slowdown this year, the job market has proven resilient. Hiring has continued at a solid pace; meanwhile, the unemployment rate has climbed but remains near a 50-year low.

“The labor market is still healthy, but we have clearly seen a slowdown,” Roger Aliaga-Diaz, chief Americas economist at investment firm Vanguard, told ABC News in a statement before the new data was released. “Now we are approaching an inflection point.”

The new data arrived two weeks after the Federal Reserve cut its benchmark interest rate a half of a percentage point. The landmark decision dialed back a years-long fight against inflation and offered relief for borrowers saddled with high costs.

Inflation has slowed dramatically from a peak of about 9% in 2022, though it remains slightly higher than the Fed’s target of 2%.

Speaking at a press conference in Washington, D.C. last month, Fed Chair Jerome Powell described the rate decision as a shift in approach as the Fed focuses more on ensuring robust employment and less on lowering inflation.

“This recalibration of our policy stance will help maintain the strength of the economy and the labor market, and enable further progress on inflation,” Powell said.

In theory, lower interest rates help stimulate the economy and boost employment. However, the Fed’s interest rate decisions typically take several months before they influence economic activity. In any case, the soon-to-be released report tracks hiring for September, meaning the majority of the period reflected in the data took place before the rate cut.

Still, the jobs report on Friday held significant implications for further rate decisions over the coming months. The Federal Open Market Committee, or FOMC, a policymaking body at the Fed, has forecast additional interest rate cuts.

By the end of 2024, interest rates will fall another half of a percentage point from their current level of between 4.75% and 5%, according to FOMC projections. Interest rates will drop another percentage point over the course of 2025, the projections further indicated.

Hurricane Helene spotlights rising prices for home and flood insurance

Downed trees on a home in the aftermath of Hurricane Helene, Sept.r 29, 2024, in Rutherfordton, N.C. (Sean Rayford/Getty Images)

(NEW YORK) — Hurricane Helene flooded properties and devastated buildings in recent days as it tore across a vast stretch from Florida to Tennessee.

Over the coming days and weeks, households will start to rebuild — and the costs will be enormous. Some homeowners will struggle to afford it.

The devastation arrives after years of skyrocketing prices for home and flood insurance that have left some households without coverage and others choosing low-cost plans with weaker policies, experts told ABC News. The increase owes in part to a surge in costs for building materials as well as the risk of more frequent or intense storms posed by climate change, they said.

Homeowners at properties damaged by Helene are likely to see their insurance costs rise even further, imposing financial strain for years to come, the experts added.

“There’s no question that the burden on households’ budgets has increased in recent years,” Benjamin Keys, a professor of real estate at the University of Pennsylvania’s Wharton School, told ABC News. “It has gotten substantially more expensive to live in harm’s way.”

Helene, which made landfall in Florida’s Big Bend region Thursday night as a Category 4 hurricane, was the strongest hurricane to make landfall in the Big Bend on record.

More than 100 people have been killed by Helene.

Helene dumped more than 30 inches of rain on North Carolina, producing the biggest local flooding in recorded history. The path of the storm’s devastation has spanned more than 600 miles.

Homeowners are set to draw on insurance policies that have become much more expensive in recent years.

In 2023, the nationwide average premium for owner-occupied homeowners insurance climbed about 11%, rising three times more than the overall inflation rate, S&P Global found in January.

Beginning a few years earlier, insurance prices soared even higher for homeowners in the region impacted by Helene. In Florida, the average home insurance price jumped a staggering 43% from January 2018 to December 2023, S&P Global said. Over that same period, the average insurance price for homeowners increased about 36% in North Carolina.

Rising prices leave customers less likely to purchase strong plans with ample benefits in the event of a disaster, Shan Ge, a professor at New York University who studies insurance and climate change, told ABC News.

“With the costs going up, people are getting less insurance and that’s going to be a problem when a disaster like this hits,” Ge said. “The recovery will be slower and the financial effects will be bigger.”

Homeowners insurance sometimes includes separate hurricane insurance, which typically involves an additional deductible paid by the consumer for damage incurred by a hurricane.

Neither homeowners insurance nor hurricane insurance covers flood damage, however. Instead, consumers must purchase flood insurance, but a far lower share of homeowners enrolls in flood coverage than home insurance.

The damage caused by Helene could expose the difficulties caused by that relatively low enrollment rate in flood insurance, Jeff Waters, an analyst at Moody’s Analytics subsidiary RMS, told ABC News.

“With an event like Helene where we are seeing all of the water, there’s likely to be more uninsured losses happening due to water because you don’t have as much take up there as you would on the hurricane policy side of things,” Waters said.

The price of flood insurance has also increased in recent years, and it’s expected to rise at a faster rate for some households going forward as the National Flood Insurance Program puts in place what it has called “Risk Rating 2.0.”

The new approach will set the price of flood insurance based on a calculation of each home’s risk of flooding, altering a previous policy that examined whether a home belonged to a general at-risk area.

Some homes damaged by Helene will face a price crunch as they weather an increase in flood insurance costs, alongside the anticipated increase in homeowners insurance that typically follows a hurricane, some experts said.

“It’s pretty clear in the aftermath of these disasters that homeowners insurance premiums rise a lot,” Ishita Sen, a professor of finance at Harvard Business School who studies home insurance rates, told ABC News.

The prospect of higher insurance costs could prompt difficult choices for homeowners and their communities, said Keys.

“This higher cost of living in disaster-prone areas is hitting households’ pocket books in ways that we haven’t seen,” Keys said. “Eventually it’ll induce substantial chances in these communities, whether that’s deciding where to live or how to build.”

FBI warns scammers are impersonating landowners to sell properties to unsuspecting buyers

This undeveloped property in Randolph, New Jersey, was sold in December 2023, but the owners did not place the land on the market. (Jared Kofsky/ABC News)

(NEW YORK) — When a man claiming to own a vacant Randolph, New Jersey, investment property called real estate agent Lisa Shaw last summer, she thought it would be the start of another typical real estate transaction in the Garden State suburbs.

“He said he had this piece of property for over 25 years in Randolph, even though he had never been to Randolph,” Shaw told ABC News.

She said she asked the man why he wanted to put this land on the market.

“He said, ‘Well, real estate is really high right now.’ He thought he could get the best dollar for it,” Shaw said. “He also told me his wife was ill and he needed the proceeds from that money for his wife’s illness.”

Shaw says she did not realize that not only did the man on the phone not actually own the property in question — but that this one phone call would ultimately connect that vacant lot to an alleged international crime web that authorities say involves fake documents ranging from Canada to Vietnam.

The incident is just the latest example of what the FBI says is a growing and troubling new form of fraud affecting unsuspecting landowners nationwide.

“Who would ever think that somebody would sell your own property from right under your nose, without your knowledge, and be able to dupe the system and everyone involved in that transaction?” Jim Dennehy, assistant director in charge of the FBI for New York, told ABC News Chief Business Correspondent Rebecca Jarvis.

‘No one suspected it’

Shaw, who has been selling properties in and around Randolph for more than two decades, says that after she spoke with the purported property owner, she asked him for documentation.

The man said that he and his wife were Canadian citizens living in England, and he provided a British address and copies of what appeared to be their driver’s licenses from the Canadian province of Ontario.

What Shaw didn’t know was that the property in Randolph was actually owned by a husband and wife from Texas. When the driver’s licenses arrived, they had the names of the real owners — just not their Texas address.

“Everything looked fine,” Shaw said, explaining that she proceeded to put the land up for sale and immediately received around 10 offers.

But the licenses turned out not to be fine. An official with Canada’s Peel Regional Police told ABC News that both identification cards were fake.

Although the licenses contained real addresses in the Toronto area, the owner of the home at one of those addresses told ABC News that she has no idea how her address ended up being listed on the fake identification card, and that she had nothing to do with an attempted property sale in New Jersey. The owner of the home at the British address, an attorney, said the same thing — but he suspected that scammers could have found his home address in England because he used to own property in Florida.

Back when the property in Randolph was getting ready to be sold, Shaw says no one involved detected that this was a scam.

“No one suspected it, not the attorneys, not myself, not the title company,” she said.

When the supposed property owner asked Shaw about the offers that had come in, Shaw said she told him that the highest one was for $140,000, and that he told her to immediately accept the offer.

Sale documents were soon prepared and the man provided paperwork that purportedly showed he had gotten the deed notarized at the U.S. embassy in Vietnam.

In December, the deal closed — all while the real property owners had no clue that the transaction had taken place. The supposed seller asked for the $140,000 payment to be split in half and sent to two different banks, according to Shaw.

But the title company encountered trouble while attempting to submit the second $70,000 payment.

“That set off the red flag,” explained Shaw, who said that the title company was then able to get in touch with the son of the real owners. “We knew it was definitely identity fraud.”

But by that point, it was too late. Shaw said that the initial $70,000 payment had already gone through, and the supposed seller had disappeared.

The buyer that paid $70,000 to the fraudulent seller is still listed in municipal and county tax records as the property’s new owner — but since the original owners did not authorize the sale, it remains unclear what will happen to the land now.

“It was a real shock to find out that people were devious [enough] to do this kind of thing,” Shaw said.

‘A lot of litigation’

ABC News has learned that the FBI is now investigating the alleged scammers who fraudulently sold the lot in Randolph — though the owners of the British and Canadian homes that were used as fake addresses said they have not yet been contacted by American law enforcement authorities. The FBI would not confirm or deny details of the investigation.

Dennehy, who was previously FBI Newark’s Special Agent in Charge, is urging owners of vacant land to remain vigilant and check their property records, as the bureau has reported a 500% increase in vacant land fraud over the last four years.

“It all comes down to due diligence on behalf of the buyer, the real estate agent, the title companies and beyond,” Dennehy said, explaining that scam artists pretend to be real landowners by using publicly accessible property information.

Dennehy cited another New Jersey case in which a property owner found out that her land was fraudulently sold when the new owner showed up with construction equipment.

The FBI is encouraging real estate agents and property owners who suspect fraud to contact authorities before money changes hands.

“It’s probably going to be a whole lot of litigation for many, many months and years to come, if that money is already gone,” Dennehy said. “Technically you’re no longer the owner of the property, so now it has to get into civil lawsuits, a lot of lawyers [with] a lot of litigation involved in order to try to reclaim what’s yours to begin with.”

‘Vacant land is very easy to steal’

As a result of these scams, real estate industry groups in parts of the country with large swaths of vacant land are issuing urgent warnings to their members.

“Vacant land is very easy to steal because not everybody is going to be checking up on a vacant piece of property once a month,” Emily Bowden, executive officer of the Sussex County Association of REALTORS in New Jersey, told ABC News. “Not everyone who owns that land necessarily lives in our area.”

Bowden said real estate agents should try to meet with sellers in person whenever possible, make sure that their mailing addresses line up, and assess how well sellers actually know the lay of the land that they are seeking to put on the market.

A desire to sell a vacant lot as quickly as possible can be suspicious, Bowden said, adding that real estate agents who do not do their due diligence when representing fraudulent sellers could face lawsuits.

Derek Doernbach, who sells properties on the Jersey Shore, says he was contacted by three purported sellers who he believes were actually scammers. He said that, as a result of his suspicions, he declined to list any of the three properties.

According to Doernbach, all of the supposed sellers sent him Canadian driver’s licenses containing the exact same picture and address as the license that was presented to Shaw by the alleged scammer in the Randolph case.

“Without a doubt, this has to be the same people, or it’s just a ring on the dark web that is circulating the same driver’s license around,” Doernbach said.

A year after she was first contacted by the alleged Randolph scammer, Shaw says she wants to make sure other real estate agents remain on the lookout.

“If you have a piece of property that someone wants to sell and it’s vacant property, really, really get your feelers up on that one because there could be a potential fraud,” she said. “It’s a very easy way that they’re doing this, and it’s successful. And nobody knows until after the fact.”