Anyone predicting large rate cuts is also predicting a recession. Felt like nearly everyone predicted a recession last year that never came.

More likely given the data is we end up with 2-4 small rate cuts this year as the Fed tries to stick the landing.

>> I must be missing something.

The upcoming presidential election

If you want housing prices to come down due to raising rates instead of home building, we wouldn't just need the rates themselves to be up. If rates are high, most people don't want to sell their house either, as moves to a bigger house become prohibitive when you go from a smaller house at 2.5% to a bigger one at 7%. What we have now is relatively few home sales, which aren't enough to stay on the market for long, as there are barely enough to meet the demand of people who don't care much about mortgage interest rates.

The typical force for prices to go down in a situation like this involves too many houses for sale. And given that most new construction froze, as the interest rates also hurt builders, we'd need an increase of supply from people being forced to sell, at a time few want to. That means large job losses and being unable to afford the mortgage they already have. A job market so bad, we'd most likely been in a pretty big recession. Given that the fed wants to avoid this, it's very unlikely that we'll see home prices fall at all unless they mess up. This isn't that weird in other parts of the world: There's been soft landings in other countries, just never in the US.

The whole idea of rate cuts isn't just a matter of pundits. Jerome Powell suggested up to three rate cuts in 2024, and him speaking is not punditry: Depending of who you are learning macro from, it is forward guidance, a form of monetary policy.

Covid, the lockdowns, and the post-lockdown period have been large natural experiments, testing whether different macroeconomics theories hold water. We had a by-the-book supply shock, followed by different levels of fiscal and monetary stimulus throughout the world. Economists will argue about this for decades.

The argument for a rate cut is that the effective rate (real rate adjusted for inflation) will increase as inflation subsides and headline rate is held. So the same rate that was pumping the brakes at 7% inflation would be slamming them at 2% inflation.

I agree with your skepticism though.