Treasury Secretary Warns of a ‘Housing Recession’ and Points Finger at the Fed

The U.S. housing market, along with other segments of the economy, may already be in a recession because the Federal Reserve has not been aggressive enough cutting interest rates, Treasury Secretary Scott Bessent said Sunday. 

"I think that we are in good shape, but I think that there are sectors of the economy that are in recession," Bessent told CNN's Jake Tapper during an interview on "State of the Union." "And the Fed has caused a lot of distributional problems with their policies."  

President Donald Trump's appointee said housing has been hindered by high mortgage rates, which he blamed on the central bank.  

"So if the Fed brings down mortgage rates, then they can end this housing recession," Bessent said, adding that low-income consumers are being hit hardest by the purported downturn because they have debts rather than assets.

The Fed does not set mortgage rates directly, but instead sets the federal funds rate, which is a short-term rate for commercial banks.

Mortgage rates tend to follow the yields of long-term bonds, which are influenced by investor expectations about future Fed policy and financial conditions.

"While the Fed could have some impact on the health of the housing market, lower mortgage rates and stronger homebuyer sentiment require improvements to the rest of the economy as well," says Realtor.com® senior economist Joel Berner.

At the latest Federal Open Market Committee (FOMC) meeting last Wednesday, Fed policymakers followed through with their widely anticipated quarter-point rate cut, lowering the benchmark overnight borrowing rate to a range of 3.75%-4%.

The next day, the average rate on 30-year fixed home loans fell to 6.17%—the lowest level in over a year.

However, Fed Chair Jerome Powell swiftly poured cold water on expectations of another rate cut in December, which would have been the year's third. 

"A further reduction in the policy rate at the December meeting is not a foregone conclusion, far from it," Powell told reporters. "Policy is not on a preset course."

Trump-appointed Fed Governor Stephen Miran, who was one of two policymakers to vote for a larger half-point reduction at the latest FOMC meeting, warned in an interview with The New York Times published Saturday that the central bank's reluctance to cut rates could lead to 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 told the publication. "I don't see a reason to run that risk if I'm not concerned about inflation on the upside."

During his weekend appearance on CNN, Bessent sounded a similar note, arguing that the Trump administration has reduced government spending, which should result in a lower inflation rate. 

"If inflation is dropping, then the Fed should be cutting rates," the cabinet member said.

The Fed has a dual congressional mandate to ensure maximum employment while keeping annual inflation as close to its 2% goal as possible. 

To achieve that, the central bank raises interest rates to rein in inflation and lowers them to boost job growth.

Berner says while another rate cut by the Fed would give mortgage rates room to fall, it may not correspond to a one-to-one decrease in longer-term mortgage rates.

"There is much uncertainty in the economy that adds to the differential between the Fed's target rate and the rate available to homebuyers," notes the economist.

With the government shutdown now in its second month, the Fed has been forced to make its policy decision without access to crucial economic data, such as the employment numbers for September.

A delayed inflation report from the Bureau of Labor Statistics released late last month showed the Consumer Price Index increased 3% in September from a year ago, marking the sixth consecutive month of rising annual inflation. 

Is the housing market in a recession?

Berner would not go so far as to say the housing market is currently in a recession, as Bessent has suggested, but he said it might be in danger of entering one based on several key indicators.

"Home sales are on pace for their slowest full year since 1995, and even more recently as mortgage rates have fallen, the number of sales has not picked up enough to close the gap," notes Berner. "At the same time, builders seem to be pulling back from delivering high volumes of low-priced new homes in the way that they have in the years since the pandemic."

Demand for homes appears low, as buyers continue to face affordability headwinds, and supply is pulling back.

"The housing market is ultimately underpinned by the labor market, which has softened significantly in 2025 as tariffs and the general business cycle slowdown have led companies toward less hiring and more layoffs," explains the economist. "People who don't feel confident in their employment are unlikely to make a large purchase like a new home."