Interest Rate Cut in Oct: Trick or Treat? (+ BPCON25!)

[Andreas Mueller]

Welcome to my weekly Skeptical Investor article, right here on BP! A frank, hopefully insightful, dive into real estate and financial markets. From one real estate investor to another.

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This week, we’re talkin’ gov “shut down”, is the Fed cutting rates in October still?, and I’m at the Bigger Pockets 2025 Conference in Las Vegas!

Let’s get into it.

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Today’s Interest Rate: 6.34%

(FLAT from this time last week, 30-yr mortgage) -------- The Weekly 3 in News:

1. - Is the labor market really weakening, or is it merely “rebalancing” as a result of low immigration? Dallas Fed analysis says it may not be as bad as the pundits are saying (DCB).
2. - The Atlanta Fed’s GDPNow says the U.S. is growing at +3.8%. But Moody’s Analytics finds 23 states may be in recession. What gives? (Simon Ree)
3. - Data centers are growing geometrically, and so is electricity demand. What will happen to electricity prices, landlords/renters? (ZeroHeddge)

Apologies for the late post y’all!

I’ve been at a real estate investor conference this week hosted by BiggerPockets.com, a fantastic online resource and community for real estate investors (And if you are unfamiliar with this community, I highly recommend you check it out. I’m one of their featured real estate agents, and have been a part of this community for the better part of a decade).

So this week’s article will be a little more concise, if I can help it, as I frantically attack my keyboard before I sprint over to meet a few conference attendees who want to talk real estate (one of my favorite things, obviously).

Nevertheless, I wanted to give a few thoughts before I head over.

Quick Take: State of the Economy

In short. The labor market continues to soften, inflation is on trend down but may be volatile in the short term, the US economy is still expected to grow like gangbusters at 3.8%, and the Fed has a great cut decision to make just before Halloween (Oct. 29th).

Spoooooooky.

Oh, and we have no government data on either of the above since Congress is totally cockeyed and can’t pass a budget.

Cool. Cool.

Companies Lower Hiring Plans

Without BLS jobs data (which has been ultra-suspect for years, frankly), we (and the Fed itself) are operating a bit in the dark. Companies last month announced plans to add 117,313 jobs, down 71% from a year earlier and the weakest September reading since 2011.

Now this is what companies tell the surveyor, but still a very strong signal.

And job postings on the Indeed job platform are down. Now close to 2019 levels.

Again, not terrible, but a signal.

Folks may be keeping their jobs, unemployment is still at 4.3%. But the pace of hiring is really taking a breather.

Trick or Treat From the Fed?

The Fed is likely to cut rates in October. Bond market has priced in a near 100% chance.

However…I now have (some) doubts.

They could very much use the excuse that, because of the Shut Down, they do not have enough data to determine if the labor market is weak enough to warrant a cut, in the face of levitating inflation (which they also don’t have fidelity on). The US economy is still at full employment (aka anything below 5%).

Quick aside: the government isn’t “Shut down.” That is a salacious term that is used for some odd reason. Because Congress couldn’t agree on its annual spending bills by the start of the Fiscal Year on Oct. 1, we are essentially now running in government Safe Mode. Essential functions of the government still function, many folks still are required to go to work, and those who are furloughed (ie, sent home and told not to come to work) are effectively taking a vacation; they will receive full backpay once Congress gets its act together to pass the government funding bill.

If I were handicapping it, based on the rhetoric from both sides, I think they take another 2-4 weeks to figure this out.

But I digress….

The Bigger Pockets 2025 Conference: Las Vegas

BPCon25 this year has been fantastic. I've been both enthralled by superb presenters/speakers and met numerous good folks from across the country (and a few from overseas) who are all looking to better themselves as investors/operators.

And I've been a little surprised by how genuinely enthusiastic folks are in, not only what I'm doing, but also in my home market of Nashville. The second I mention Nashville, the topic always turns to their intrigue about it as an investment market and how they have heard great things from colleagues who invest here (and also the, shall we say, enhanced time they had here once last at night on Broadway).

Candidly, I’ve felt a little like the hot girl at the club (for once :).

But really, it’s been the learning from others that has been such a value add. I've met so many beginning, growing, record-breaking real estate investors this week, across a variety of strategies and asset classes. I’ve shared (and debated) about views on the economy, the role of government in real estate, investment strategies, asset classes, how to best underwrite deals… It's frankly just damn enjoyable to turn around in a room and be able to talk and share with a new person in the industry.

Everyone here is trying to step their game up, and give a hand up to the next person.

If you haven’t been and are even the slightest interested in real estate as an investment class, I highly recommend.

And.

They don’t throw a bad party. (Drai’s)

Post-cocktail dance floor.

Oh, and I caught the UFC fight over the weekend!

Here is a picture I snapped of Alex Pereira getting the belt back after KO’ing Magomed Ankalaev in the first round. Holy hell this was epic!

I completely lost my voice before the conference even started.

Worth it.

My Skeptical Take:

The market is softening, but there are mixed signals. As we saw last week, personal consumption is still robust enough and unemployment, low enough, and income growth is high enough (still higher than inflation) that the US economy is chugging along nicely.

So far.

Or, perhaps we’re in a good enough economy? Artificial intelligence is driving, corporate profits, strong employment, and a robust American consumer.

We should celebrate that.

But also, there are pockets of deep despair. I would not want to be a college graduate now in anything not math or science related, especially if I were looking for a white collar, middle-manager type career.

Counterpoint: blue-collar workers are having their day. Working in the trades, working with your hands, is something that AI cannot disrupt. (At least for many years to come). If you sweat for a living chances, are you're doing pretty damn well.

So, getting back to real estate, will the Fed cut rates this month and deliver a treat for Halloween? Yes I believe they will however, I am now 75% sure only, down from 90% sure just last week. The labor market has not broken yet, and inflation will continue to be volatile in the short term. At the last Fed meeting in September, the minutes indicated there may have been more support for no cut than for a half-point cut.

So, in the face of low data availability, this raises doubts for a Fed that says they are data data-dependent.

But…. a thought amongst all this hoopla.

America is a great place to be.

And in the words of Peter Lynch, the famed investor, I’ll leave you with this.

“America creates China duplicates and Europe legislates.”

I wouldn’t want to be anywhere else.

Ok, time to walk the pooch. Good night y’all….

Until next time. Stay Curious. Stay Skeptical.

Herzliche Grüße,

-The Skeptical Investor