Bessent Attributes Housing Recession to High Interest Rates

High interest rates are impacting the U.S. housing market, with Treasury Secretary Scott Bessent indicating that parts of the economy may already be in recession. During an appearance on CNN’s “State of the Union,” Bessent emphasized that while the overall economy remains robust, certain sectors, particularly housing, are struggling.

Bessent Attributes Housing Recession to High Interest Rates

Bessent pointed out that high mortgage rates are significantly affecting the real estate market. He noted that low-end consumers are particularly vulnerable, as they tend to have debts rather than assets. This demographic is feeling the pinch the hardest amid the rising costs of borrowing.

In September, pending home sales in the U.S. remained unchanged, according to the National Association of Realtors. This stagnation indicates that the market is not responding well to current economic conditions.

Federal Reserve’s Role in Economic Transition

Bessent described the economic climate as being in a transitional phase. He criticized the Federal Reserve’s current policies, suggesting that prolonged high interest rates could inadvertently lead to an economic contraction.

Fed Chair Jerome Powell stated that the central bank may not cut rates further during its December meeting, a decision that has faced backlash from Bessent and former officials of the Trump administration. This criticism mirrors concerns from Fed Governor Stephen Miran. In a recent interview with the New York Times, he warned that failing to lower interest rates could precipitate a recession.

• Pending home sales were flat in September.
• Bessent believes certain sectors are in recession.
• High mortgage rates are detrimental to low-end consumers.
• Miran argued for a more aggressive rate cut of 50 basis points.

Bessent echoed Miran’s sentiments, noting that the Trump administration’s fiscal strategies had reduced the deficit-to-GDP ratio. This, he argued, should help alleviate inflation pressures. There is a strong belief that if government spending is contracting, inflation should follow suit, leading the Fed to consider further rate cuts.

As the situation evolves, the focus remains on how federal monetary policy will respond to these economic challenges. The housing market’s future hinges on effective rate management and broader economic conditions.