Housing Recession Warns Treasury Secretary: Fed’s Slow Cuts Hit Hard

Treasury Secretary Scott Bessent has issued a stark warning about the U.S. economy, declaring that the housing market is already in a recession. He points the finger directly at the Federal Reserve for not cutting interest rates aggressively enough. This comes as high mortgage rates continue to stifle homebuying activity across the nation.

Bessent shared these concerns during a recent interview on CNN’s “State of the Union” with host Jake Tapper. He emphasized that while the overall economy remains stable, certain sectors like housing are suffering due to the central bank’s policies. “The Fed has caused a lot of distributional problems with their policies,” Bessent stated.

The housing recession, as described by Bessent, stems from elevated mortgage rates that make homeownership unaffordable for many Americans. Low-income consumers, who often carry more debt than assets, are feeling the pinch the hardest. This situation has led to a slowdown in home sales and construction, raising alarms about broader economic implications.

Understanding the Federal Reserve’s Role in the Housing Recession

The Federal Reserve does not directly control mortgage rates, but its decisions on the federal funds rate heavily influence them. The federal funds rate is the short-term interest rate at which banks lend to each other overnight. When the Fed adjusts this rate, it ripples through to longer-term rates, including those for home loans.

Mortgage rates typically track the yields on long-term Treasury bonds. These yields reflect investor expectations about future Fed actions and overall economic conditions. In recent months, despite some rate cuts, mortgage rates have remained high, hovering around 6% for 30-year fixed loans.

At the latest Federal Open Market Committee (FOMC) meeting, the Fed lowered the benchmark rate by a quarter-point to 3.75%-4%. This move was anticipated, but it did little to boost housing activity significantly. The following day, average 30-year mortgage rates dipped to 6.17%, the lowest in over a year, yet still too elevated for many potential buyers.

Fed Chair Jerome Powell’s Cautious Stance

Fed Chair Jerome Powell has tempered expectations for further rate reductions. In a recent speech, he noted that another cut in December is “not a foregone conclusion.” Powell stressed that policy decisions are data-dependent and not on a preset path.

This caution from Powell contrasts sharply with calls from figures like Bessent and Fed Governor Stephen Miran. Miran, a Trump appointee, dissented at the last FOMC meeting, advocating for a half-point cut. In an interview with The New York Times, Miran warned that prolonged tight policy could induce a recession.

“If you keep policy this tight for a long period of time, then you run the risk that monetary policy itself is inducing a recession,” Miran said. He argued there is no pressing inflation threat justifying the hesitation.

Impact of the Housing Recession on Low-Income Families

The housing recession disproportionately affects lower-income households. These families often rely on affordable housing options but face barriers due to high borrowing costs. With mortgage rates elevated, monthly payments have surged, pricing many out of the market.

Existing homeowners with low-rate mortgages from previous years are reluctant to sell, reducing inventory. This lock-in effect exacerbates the supply shortage, driving up prices despite weakened demand. For renters aspiring to buy, the dream feels increasingly distant.

Economist Joel Berner from Realtor.com highlights that while the Fed can influence rates, broader economic improvements are needed for a true recovery. “Lower mortgage rates and stronger homebuyer sentiment require improvements to the rest of the economy as well,” Berner explained.

This follows recent market volatility tied to policy shifts, where economic indicators have shown mixed signals.

Broader Economic Sectors Feeling the Strain

Bessent noted that the housing recession is part of wider sectoral downturns caused by Fed policies. Construction jobs have declined as builders pull back from new projects. Related industries, like appliances and furniture, are also seeing reduced demand.

The labor market, a key pillar of housing health, has softened in 2025. Tariffs and business cycle slowdowns have led to fewer hires and more layoffs. Uncertain employment prospects deter big purchases like homes.

Despite these challenges, the overall economy shows resilience. Unemployment remains low, and consumer spending in non-housing areas holds steady. However, the housing recession signals potential cracks that could widen if unaddressed.

Historical Context: Past Housing Recessions and Lessons Learned

The U.S. has experienced housing recessions before, most notably during the 2008 financial crisis. That event, triggered by subprime lending and a housing bubble burst, led to millions of foreclosures and a deep economic downturn. Recovery took years, with lasting impacts on wealth inequality.

Today’s housing recession differs in key ways. It lacks the speculative frenzy of 2008, stemming instead from monetary policy and affordability issues. Yet, parallels exist in how high rates suppress activity and hurt vulnerable groups.

Experts compare the current situation to the early 1990s recession, when high interest rates curbed housing. Back then, aggressive Fed cuts eventually spurred recovery. Whether history repeats depends on future policy moves.

Similar to tech sector slumps influenced by economic policies, the housing market’s woes reflect interconnected global pressures.

Policy Responses from the Trump Administration

The Trump administration, through Bessent, claims credit for reducing government spending to tame inflation. Lower inflation should, in theory, allow the Fed more room to cut rates without reigniting price pressures.

“If inflation is dropping, then the Fed should be cutting rates,” Bessent argued on CNN. This aligns with the administration’s push for looser monetary policy to support growth.

However, the ongoing government shutdown complicates matters. Now in its second month, it has delayed critical data like September employment figures. The Fed made its recent decision without full information, adding uncertainty.

Expert Opinions on the Housing Recession Outlook

Economists offer varied views on whether the housing market is truly in recession. Berner stops short of confirming Bessent’s claim but warns of risks. Home sales are on track for their slowest year since 1995, he noted.

Builders are scaling back low-priced new homes, once a post-pandemic staple. Demand remains tepid amid affordability hurdles, while supply tightens. This combination could push the market deeper into recession territory.

Analysts from the National Association of Realtors echo concerns. They predict modest sales growth if rates fall further, but persistent high prices could offset gains. Stakeholder perspectives from buyers highlight frustration with locked-out opportunities.

As reported in our coverage of executive policy influences, such warnings underscore the need for coordinated fiscal and monetary efforts.

Inflation Data and Fed’s Dual Mandate

The Fed’s mandate is to balance maximum employment and 2% inflation. Recent data shows the Consumer Price Index up 3% year-over-year in September, the sixth straight increase. This stickiness justifies some caution.

Yet, with inflation cooling from peaks, critics like Bessent argue for bolder action. A one-to-one link between Fed cuts and mortgage rate drops isn’t guaranteed, Berner cautions, due to economic uncertainties.

Government shutdown delays have hampered data flow, forcing the Fed to navigate blind spots. Upcoming reports could sway the December decision, potentially averting a deeper housing recession.

Implications for Buyers, Sellers, and Investors

For homebuyers, the housing recession means waiting for better conditions or exploring alternatives like adjustable-rate mortgages. First-time buyers, especially low-income, may need assistance programs to enter the market.

Sellers face a tough choice: hold out for higher prices or accept lower offers in a slow market. Inventory shortages keep values supported, but transaction volumes are down sharply.

Investors in real estate should reassess strategies. Rental properties might offer stability, but development risks rise with construction slowdowns. Broader market implications include ripple effects on banking and consumer confidence.

What Might Happen Next: Scenarios for 2026

If the Fed cuts rates more aggressively, the housing recession could ease by mid-2026. Lower mortgages might unlock pent-up demand, boosting sales and prices moderately.

Conversely, persistent tight policy risks prolonging the downturn, potentially spilling into other sectors. A full economic recession becomes more likely if housing drags growth.

Watch for December FOMC signals, inflation trends, and shutdown resolution. These factors will shape the housing recession’s trajectory and inform reader actions.

Practical Takeaways for Navigating the Housing Recession

Potential buyers should monitor rates closely and improve credit scores for better terms. Saving for larger down payments can offset high rates, making loans more manageable.

Homeowners might consider refinancing if rates drop further, locking in savings. Budgeting for economic uncertainty, including building emergency funds, is crucial.

For a deeper dive into qualifying for a mortgage amid challenges, resources abound to guide decisions.

Long-Term Strategies and Policy Recommendations

Addressing the housing recession requires multifaceted approaches. Policymakers could expand affordable housing initiatives or tax incentives for first-time buyers.

Industry leaders advocate for streamlined regulations to spur supply. Consumers benefit from financial education on navigating high-rate environments.

To understand mortgage payments in this climate, breaking down costs helps in planning.

Exploring escrow accounts for secure transactions provides additional protection during uncertain times. These evergreen principles remain vital as the housing recession unfolds.

In summary, the housing recession highlights tensions between monetary policy and economic sectors. Bessent’s warning urges swift action to prevent wider fallout. Staying informed empowers readers to weather the storm.

Source: Yahoo Finance