The Federal Reserve has signaled it will roll out its first interest rate cut in years at its upcoming meeting on Sept. 17-18. USC experts are available to discuss what this means for California’s economy – the fifth largest in the world – and its key industries.
Contact: Nina Raffio, raffio@usc.edu or (213) 442-8464; USC Media Relations, uscnews@usc.edu or (213) 740-2215
Market movements await Fed’s decision ahead of presidential election
“Given the official’s stated positions, the Fed is expected to cut rates by either 25 or 50 basis points. My impression is that the markets will react relatively strongly to whichever option the Fed chooses. First, because it will be the last meeting before the presidential election, meaning the decision will be heavily scrutinized in hindsight,” said Ricardo de la O, an assistant professor of finance and business economics at the USC Marshall School of Business.
“Second, because recent data, including today’s jobs report, has been quite mixed and hasn’t provided clear support for either option. The markets are still waiting for decisive evidence in one way or the other, which may not come until the actual meeting.”
rdelao@marshall.usc.edu
Lower rates, sales tax revenue boost transportation projects ahead of the 2028 LA Olympics
“Most of California’s transportation infrastructure – rail and bus systems, new freeway lanes – is entirely publicly funded. Interest rates affect these investments by reducing the borrowing costs for private contractors who do most of the construction. This translates to lower construction costs, allowing our public funds to go further,” said Genevieve Giuliano, interim dean and distinguished professor at the USC Price School of Public Policy.
Transportation projects in Los Angeles also rely heavily on sales tax revenue as a funding source, which can be leveraged as collateral for low-interest loans, said Giuliano, who also holds the Ferraro chair in effective local government at USC Price.
“For example, LA Metro received a low interest federal loan to help construct the Crenshaw/LAX rail line and is using Measure M sales tax revenue to pay off the loan. Timetables for other projects can be accelerated to assure construction before the 2028 Summer Olympics in LA.”
Contact: giuliano@usc.edu
SoCal on track to reinforce its position as a global trade leader
“Federal Reserve interest rate cuts will energize global supply chains, with the San Pedro Bay ports at the heart of this transformation,” said Nick Vyas, director of the Center for Global Supply Chain Management and assistant professor of clinical data sciences and operations at the USC Marshall School of Business.
“Lower borrowing costs will drive business investments, boost cargo volumes and improve the flow of goods through Southern California. While inflation had been a major concern, recent signs of its stabilizing provide optimism that this growth can happen without reigniting price pressures.”
Contact: nikhilvy@marshall.usc.edu
Lower rates could push CA tech startups to ‘grow too fast’
California’s tech industry employs well over one million people and accounts for more than 10% of the state’s economy, with startups playing a critical role in driving innovation and job creation within the sector.
“Lower rates can be advantageous for founders since those lower rates will tend to lead to more investment dollars flowing. But as we saw a few years ago, that can also lead to investors pushing startups to grow too fast,” said Paul Orlando, director of the USC Incubator Program and an adjunct professor for the Lloyd Greif Center for Entrepreneurial Studies at USC Marshall.
“Times of higher rates or just a poor economy in general can actually be a good time to build startups. Founders are forced to be scrappy, they can often hire people who they couldn’t afford in better markets and they build good practices for running an efficient business. The risk is then whether the founders can shift styles when the situation changes.”
Contact: porlando@usc.edu
Rate cuts offer limited relief to small tech firms as enterprise AI thrives, expert says
“As interest rates have risen over the past few years, consumer spending on big-ticket items like iPhones and houses has slowed, affecting companies like Apple that rely heavily on consumer purchases. Meanwhile, the real growth in tech has come from enterprise AI, with major players like Microsoft, Amazon and Google thriving by selling tools to businesses rather than individual consumers,” said Milan Miric, an associate professor of data sciences and operations at USC Marshall.
“However, smaller tech companies have struggled amid higher borrowing costs and competition from safer investments like U.S. Treasuries. The Fed’s interest rate cuts will provide them with some relief, but likely won’t change much,” he added.
“California’s well-developed tech infrastructure remains a major draw for companies, but policymakers need to consider whether the state can maintain its appeal as other regions offer lower costs of living and potentially better employee retention.”
Contact: mmiric@marshall.usc.edu
Rate cuts won’t thaw California’s frozen housing market
California’s housing market won’t see a significant boost from the Fed’s rate cuts, as the anticipation of it has probably already been built into mortgage rates, according to Richard K. Green, director of the USC Lusk Center for Real Estate.
“The rates will not come down enough to unfreeze sales, because people with rates of less than 4% (about 2/3 of the market) are not going to want to sell their homes,” said Green, who holds the Lusk Chair in Real Estate and is a professor at USC Price and USC Marshall.
“For that small share of owners with an adjustable rate mortgage, the cut in rates will lead to a lower rate reset and, consequently, lower payments.”
Contact: richarkg@usc.edu
Falling rates could intensify homebuyer competition
“As interest rates decline, homebuyers bid more aggressively for homes because the monthly mortgage payment declines,” said Matthew Kahn, provost professor of economics and spatial sciences at the USC Dornsife College of Letters, Arts and Sciences.
“In areas where real estate developers can build new housing, low interest rates stimulate a boom. In areas where it is difficult to build new housing, perhaps due to NIMBYism or hilly terrain, existing homes will be bid up in value,” said Kahn, who is also a senior scholar at the USC Schaeffer Institute.
Contact: kahnme@usc.edu
Additional Experts
Marco Giacoletti is an expert in housing, mortgage markets, real estate investments and rental markets. He is an assistant professor of finance and business economics at USC Marshall.
Contact: mgiacole@marshall.usc.edu
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Sanjay Sharma is an expert in investment banking in a wide range of industry sectors including media and entertainment, financial institutions, technology, transportation, consumer and commercial finance, mortgage banking, defense and aerospace and automobile manufacturers. Sharma is an adjunct professor of finance and business economics at USC Marshall.
Contact: sanjays3@marshall.usc.edu
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(Photo/iStock)
