Rate Rant: What the Fed Controls—And What It Doesn’t

Market Update: A Message to Our Sellers and Readers

In light of recent developments, we wanted to provide a timely update on the latest Rate Rant, offering a clear summary of where the real estate market stands and where it may be heading. This Rate Rant focuses on how interest rates are shaping the decisions of investors, lenders, and borrowers. As interest rates remain front and center for investors, lenders, and borrowers, all eyes are on the 4.34% mark on the 10-year Treasury. If that breaks lower, it could push commercial loan rates back into the mid 5% range. While that’s promising, it’s important to note that ultra-low COVID-era rates are likely behind us, with inflation playing a key role in the shift.

The Fed’s Role—and Its Limits

The historically low-rate environment of the past was made possible by extraordinary monetary policy: near-zero interest rates and massive money printing. While that helped fuel asset prices, it also laid the groundwork for the inflationary pressures we’re still working through today.

Despite political noise—even pointed comments from President Trump directed at Fed Chair Jerome Powell—the Federal Reserve is proceeding cautiously.

But here’s the key point most overlook:

The Fed controls short-term rates. The market controls long-term yields.

The Fed can influence the Federal Funds Rate, which in turn impacts short-term instruments like the 3-month Treasury. But when it comes to 10-year and 30-year bond yields—which are far more relevant to mortgage and commercial lending rates—it’s the bond market that calls the shots. This Rate Rant highlights the difference between short-term Fed policies and long-term market forces.

These long-term yields are shaped by supply and demand dynamics. When institutions pour into bonds, prices rise and yields fall. When they exit, the opposite happens. And lenders, in turn, tack on additional points for borrowers.

Even if the Fed cuts rates, longer-term rates might not move unless the bond market “buys in”—literally and figuratively.

Still, the Fed’s influence shouldn’t be dismissed. Its rate policy acts as a psychological threshold, shaping market sentiment and setting expectations that ripple across financial markets.

Geopolitics, Oil, and the Fed’s Next Move

A military strike typically triggers a “flight to safety,” but the recent U.S. strike on Iranian nuclear sites seems different, viewed as a limited action. If the ceasefire holds, the market is refocusing on its main concern: inflation.

Here’s an important factor:

Iran can’t afford to disrupt its own lifeline.

Roughly 69% of the oil that passes through the Strait of Hormuz goes to Asian buyers—China, India, Japan, and South Korea. Those are Iran’s remaining customers. Any attack on this channel would be economic self-sabotage. The markets know this.

The Odds of Rate Cuts Are Climbing

Before the weekend struck, markets were pricing in a 65% chance of a Fed rate cut in September, with similar expectations that the Fed Funds Rate could fall below 4% by year-end.

And now, more Fed officials are signalling openness to cuts.

In just the past week, Fed Governors Waller and Bowman both expressed a willingness to ease. Bowman even suggested that tariffs from Trump’s trade policies may not be passed to consumers—whether true or false, he is clearly giving the Fed some breathing room to cut rates without undermining its inflation-fighting credibility.

Political pressure on Powell is intensifying—and not just from the White House—market voices are getting louder.

What to Watch Next

If the Fed cuts in July, it would be a shot of adrenaline for real estate markets.
According to the CME FedWatch Tool, there’s now a 67.5% probability of a September cut.
While July rate cuts remain a hopeful prospect, they may not be realistic. Still, we’re seeing encouraging signs that the overall environment is evolving, with renewed momentum building, especially in commercial real estate financing

The Clouds Are Clearing

There are no guarantees in life—we’ve all learned that in recent years. But if peace in the Middle East holds and favourable trade terms with China materialise, the tariff overhang will pass.

The first half of 2025 was filled with uncertainty; the second half may very well be shaping up to be robust.

As Johnny Nash once sang:

“Gone are the dark clouds that had me blind… It’s gonna be a bright, bright, sunshiny day!”

Final Word to Our Sellers

Be patient—”the buyers are coming”.

The winds are shifting. The conversation is changing. The buyers who’ve been sitting on the sidelines are listening—they might finally hear what they need to make a move.

Stay tuned.

Thank you for your attention to this matter!😁

Create a prosperous day!

Ariel O. Diaz