This week’s issue presented by Ridge Lending Group
What happened…
📰 The Fed is set to cut with inflation still ~3% (50% over target). Odds of a 25 bps move are high. Markets cheer. Pricing power stays sticky.
Takeaways…
Inflation isn’t behaving. It’s staying “sticky” closer to 3% rather than dropping toward 2%.
The Fed is under pressure. Weakness in the labor market and other economic signals are giving the Fed reason to consider easing even before inflation hits its full target.
Markets are adjusting expectations. Rate cuts are priced in, even though doing so with inflation near 3% would be outside recent norms.
Consumer inflation expectations are creeping up. People expect inflation over one year to be ~3.2%; longer‐term outlooks are also above 2%.
A new policy “norm” may be forming. If the Fed cuts rates with inflation around 3%, that could signal a shift in how rigid the 2% target is… for real.
Explain Like I’m 12…
🚸 Stopping antibiotics early: you feel better, the bug comes back meaner.
What this releases…
More policy flexibility. The Fed may feel freer to respond to labor‐market softness or recession risk without being overly constrained by hitting the rigid 2% inflation goal.
Inflation expectations shift. If people believe the Fed is okay with 3%, they might start acting like inflation really will be ~3% going forward—raising wages, pricing, etc.—which can make inflation more persistent.
Markets could shift positioning. Investors may start valuing “real” interest rates differently, pushing up yields in long‐dated bonds, shifting allocations to inflation hedges or hard assets (gold, real estate).
Credibility risk for the Fed. If inflation expectations become unanchored (i.e. people expect inflation to stay high), the Fed might lose some trust, which could make future inflation harder to control.
Why it matters…
If the Fed truly accepts inflation at ~3%, the real cost of borrowing (interest rates minus inflation) is worse than people think, especially for savers or fixed‐income holders.
Inflation being “sticky” after being accepted at 3% could erode purchasing power for consumers… groceries, rent, etc., might stay high.
Could lead to imbalances: wage inflation pressures, continued cost‐push (inputs, energy, imports), making things tougher for businesses with fixed contracts.
Sets a precedent: future Fed policy might lean toward “good enough” instead of chasing strict targets—which changes how people plan (house purchases, debt, investments).
Backroom breakdown…
Who wins: Borrowers and debtors… who benefit when real interest rates (nominal minus inflation) are low. Also businesses and sectors hurt less by inflation.
Who loses: Savers, people on fixed incomes. Also anyone expecting inflation will drop a lot.
Signal from elites: The Fed and markets are silently acknowledging that controlling inflation to 2% in current global conditions is hard. They’re shifting from a goalpost to a range, maybe. The cost of even trying might now be seen as too high politically or economically.
Real estate angle…
Expect small mortgage dips; banks lag. Lean on seller carry, sub-to, wraps.
Move or miss
Line up funding now: Ridge Lending Group
Lurking in the Shadows:
👟 Gold & Bitcoin Soar to Record Highs
🪙 Gold and Bitcoin just set records as investors look for safe havens. Gold climbed nearly $3,670/oz, while Bitcoin surged past $115,000. The move shows investors fear paper money losing value. If cash is melting, people pile into hard assets—whether coins, bars, or blockchain.
💡 Why you should care: It signals anxiety in the system. If pros don’t trust dollars, housing could get the same “hard asset” treatment. For real estate investors, this means demand for tangible property may rise—competition too.
👟 White House vs. Fed – Attempted Firing
🇺🇲 The White House tried to fire Fed Governor Lisa Cook. A judge blocked it, calling the move illegal. That’s never happened before. It signals the Fed’s independence—long assumed—might be under political attack. If the central bank bends to politics, rate cuts or hikes could swing with elections, not economics.
💡 Why you should care: If Fed policy gets political, financing real estate becomes unpredictable. Mortgage swings could be sharper, credit looser or tighter depending on politics. Investors can’t just watch markets anymore—they have to watch Washington courtrooms too.
👟 National Housing Emergency Floated
💰 Treasury Secretary Scott Bessent said Trump may declare a “national housing emergency.” The U.S. is short an estimated 4 million homes, and monthly payments on a median house jumped nearly 59% since 2020. The idea: use emergency powers to ease zoning or boost construction.
💡 Why you should care: If declared, it would be the boldest federal move on housing since 2008. That could mean more supply, new subsidies, and new rules. For investors, that’s both risk and opportunity—cheaper builds but tighter oversight.
On The Radar…
🧑🏭 Jobs Market Hits the Brakes… August’s jobs report showed just 22,000 new jobs, way below the 75K expected. Unemployment edged up to 4.3%. It’s the weakest labor print in months and raises questions about whether the “soft landing” is slipping.
📉 U.S. Deficit Near $2 Trillion… August alone ran a $345B deficit, pushing the annual gap near $2 trillion. Interest payments were $93B last month—now the third-biggest federal expense after Medicare and Social Security.
🏘 Housing Market Finally Blinks… National listing data shows the median home price fell –0.9% year-over-year in early September. After months of sellers holding firm, price cuts are finally showing up in the data.
🏢 Commercial Real Estate Crunch… Office mortgage delinquencies just hit 11.7%, the highest on record. In some cities, one-fifth of office space sits vacant, with owners defaulting rather than refinance.
💳 Consumers Strain Under Debt… Credit card balances have topped $1.2 trillion. Among the lowest-income households, more than 20% of balances are 90+ days past due—the worst since 2008.
🫧 Howard Marks Calls Bubble Risk… Value investor Howard Marks warned U.S. stocks may be in the “early days of a bubble.” With tech valuations stretched and the S&P up double digits this year, comparisons to the late 1990s are back.
🖇 The Connection
The hidden thread is simple: America is choosing cheap money over discipline—and that choice ripples everywhere.
The Fed is about to cut rates with inflation still at 3%, 50% above target. At the same time, Washington floated a national housing emergency to fix a 4-million-home shortage, and the deficit just blew out to nearly $2 trillion this year. Separate headlines? Not really. They’re all about leaders papering over structural cracks with short-term relief.
Think of it like taping over a leaky pipe instead of fixing the plumbing. The water flows for now, but pressure builds until something bursts.
For investors, that means volatility disguised as stability. Lower rates could goose housing demand, but deficits and emergency policies keep long-term inflation sticky. It’s a whiplash market: what helps you today may hurt you tomorrow.
Watch next: If rate cuts hit before inflation cools, hard assets—real estate, gold, even Bitcoin—stay in demand. But if the deficit keeps ballooning, expect higher long-term borrowing costs no matter what the Fed does.
A sad and uncomfortable moment…
“I couldn’t in any good conscience release this week’s issue without acknowledging Charlie Kirk. I didn’t follow him closely, but I certainly knew of him… and from what I know, he was a patriot: a man of conviction, courage, and principle.
Despite what many are saying, I never heard a hateful word come from his mouth, quite the opposite actually. Peace to he and his family.”
#️Number of the Week
3% inflation.
While the Fed is preparing to cut rates anyway. It’s the gap between what’s happening and what’s supposed to matter.
If you believe stable money should come first, that 3% tells you the game is already rigged.
🎯 The Hit List!
✅ If you own: Expect mixed signals—rate cuts may lower payments, but 3% inflation keeps long-term pressure on costs.
✅ If you rent: Consumer debt over $1.2T means stressed households; late rents and stalled moves could rise.
✅ If you invest: Watch office defaults—11.7% delinquency, highest ever—distress in commercial may spill into banks.
✅ Watch: Housing dip (–0.9% median price YoY); deficit blowout ($345B in August) keeps yields high.
✅ Hedge: Position with creative finance (seller carry, wraps, sub-to). Banks won’t cut as fast as the Fed.
🚩 Red Flag: Don’t chase “cheap money” hype—long-term mortgage rates may stay sticky even after cuts.
🚪 Closer
From Powell Watch to housing dips, that stubborn 3% inflation still sets the rules.
