The Federal Reserve danced to the tune of President Donald Trump and slashed the federal funds rate once again this week in what is believed to give another boost to the U.S. housing market.
As reported by Bloomberg, Moody’s Analytics chief economist Mark Zandi is of the opinion that the U.S. housing market is benefiting from the trade war. The resulting economic slowdown has led to lower mortgage rates. The Fed has been trying to prop up the economy by reducing interest rates, giving home buyers a great reason to get on the market. Zandi told Bloomberg:
“Perhaps the only beneficiary of President Trump’s trade war is housing, at least for the time being,” said Mark Zandi, chief economist at Moody’s Analytics. “The war has undermined the economy and pushed down mortgage rates.”
Trump isn’t really saving the U.S. housing market from a crash
The Fed justified its latest rate cut saying that a cloudy global economic outlook warrants looser monetary policy. That’s not surprising as the International Monetary Fund (IMF) has reduced its 2019 global economic growth estimate to just 3%, which is the lowest in over a decade.
The trade war President Trump is waging on China is one of the key reasons behind the muted economic growth forecast for the year. IHS Markit estimates that the trade war could wipe off 0.8% of global real GDP this year and 1.4% in 2020.
The decline in real GDP is bad news for the U.S. housing market as it means that consumer spending is declining thanks to lower disposable income. Now, when consumers see their disposable incomes eroding, it is highly unlikely that they will be spending their money on a big-ticket item such as a house.