Following Federal Reserve Chair Jerome Powell’s commentary at the Jackson Hole Economic Symposium last month, markets are fully expecting a policy interest rate cut from the FOMC meeting this week. Powell’s commentary struck a dovish, yet balanced, tone – acknowledging growing risks to growth, signaling flexibility in monetary policy, and reinforcing the Fed’s independence in the face of political pressure. Importantly, he introduced updates to the Fed’s policy framework – the Fed moved away from its “flexible average inflation targeting” approach, returning to a more traditional 2% inflation target and removing language that emphasized “shortfalls” in employment, reflecting a more balanced stance between inflation and labor goals.

Data published since the Jackson Hole meeting further support the case for a rate cut this week. While inflation, as measured by the Fed’s preferred Core PCE Index, has been trending the wrong way since April, the labor market has shown signs of concern. Not only did the August jobs report indicate only 22k jobs added in the month, but it also included a negative revision showing 13k jobs lost during June, the first month of negative payrolls since December 2020. Further, we saw the preliminary benchmark revision to employment growth between April 2024 and March 2025 of -911k jobs. The weakness in this revision was apparent across industries and most acute for small- and medium-sized businesses, underscoring the concept of “survival of the fittest” that we have been experiencing in the U.S. and highlighted in our 2025 market outlook.

Altogether, the balance of risks today has shifted more toward managing the Fed’s “full employment” mandate, and the market is fully expecting a rate cut from the FOMC this week, with some members likely to advocate for a 50bps cut.

Our research shows that interest rate cuts have historically been a catalyst for REIT performance, especially when compared to private real estate. In fact, REITs historically outperform private real estate in the three years following the beginning of a rate cutting cycle from the U.S. Federal Reserve.