The consumer price index fell 3% year-on-year in June, a decline that exceeded economists’ expectations. That’s a shot in the arm for the real estate industry, which has been hammered by high interest rates for years. United States Federal Reserve Trying to curb inflation.
Evidence that inflation has cooled significantly increases the likelihood that the Federal Open Market Committee will cut interest rates in September and at least one more rate cut in 2024.
Overall prices fell from May, with the core price index rising just 0.1%. Housing costs, the largest component of CPI and by far the most stubborn, rose 0.2% month-on-month in June and 5.2% year-over-year. This is the slowest year-on-year growth rate since 2022 and is down from a peak of more than 8% in early 2023.
After a historic rate hike from March 2022 to July 2023, the Fed has kept borrowing costs at 5.3% over the past year and intends to make multiple interest rate cuts in 2024. The optimism comes despite some economists saying that’s because the Fed relies on flawed, lagging indicators such as owner-equivalent rents.
“If we ease policy too late or too little, we could harm economic activity,” Fed Chairman Jerome Powell said this week. “If we ease policy too much or too quickly, then we could undermine the progress of inflation. So, We very much balance those two risks, and that’s really the nature of our thinking these days.
Still, Powell did say in his speech to Congress that he sees a more balanced economy and that there is evidence that inflation is moving toward the 2% target.
“There is a significant difference between ‘continuing toward 2 percent’ and ‘reaching 2 percent,’ and by using this language, Chairman Powell is raising expectations that the central bank is almost ready to cut the federal funds rate,” said Lisa Sturtevant, Chief Executive Officer economist Bright MLS.
“Potential homebuyers have been eagerly awaiting a drop in borrowing costs. Mortgage rates will fall when the Fed cuts rates – likely in September – but if the Fed makes their intentions clear, mortgage rates will Lending rates are likely to fall even before the Fed actually cuts rates.
