Intelligent Investment
Economic Watch: Cooling Inflation in August Sets Up Fed Rate Cut Next Week
September 11, 2024 2 Minute Read
Executive Summary
- The Consumer Price Index (CPI) rose by 2.5% year-over-year in August, down from 2.9% in July and slightly below expectations of 2.6%.
- Core inflation, which excludes food and energy prices, remained at 3.2% year-over-year as expected.
- Price increases were primarily driven by housing and transportation costs, while energy prices fell by 4% year-over-year.
- Lower annual inflation paves the way for the Fed to begin cutting interest rates by at least 25 basis points (bps) next week, with additional cuts likely in November and December.
- Lower interest rates will support increased commercial real estate investment activity during coming quarters.
The Bottom Line
Cooling inflation supports CBRE’s view that the Fed will begin cutting interest rates by at least 25 bps next week. However, core CPI remained higher at 3.2% year-over-year, largely due to a 5.2% increase in housing prices. Other sizable annual increases came from motor vehicle insurance (16.5%), education (3.1%) and medical care (3.0%). Despite persistent service sector inflation, we expect price increases will moderate toward the Fed’s 2% target in coming months.
As the Fed begins to cut rates and long-term bond yields decrease, capital markets activity will increase. We expect overall investment activity this year likely will exceed 2023’s level and accelerate in 2025.
Figure 1: CBRE House View
