Intelligent Investment
Economic Watch: Easing Inflation Boosts Odds of Two Fed Rate Cuts This Year
July 11, 2024 3 Minute Read
Executive Summary
- The Consumer Price Index (CPI) fell by 0.1% in June, lowering the year-over-year inflation rate to 3.0%. While energy prices fell for the second consecutive month, there were notable increases in shelter and motor vehicle insurance costs.
- Core inflation, which excludes food and energy prices, rose by 0.1% for the month and 3.3% over the past year, below expectations of 0.2% and 3.4%, respectively. This was the lowest annual increase in three years.
- June’s CPI reading likely will embolden the Fed to lower interest rates, beginning with a 25-basis-point cut in September and another in December.
- Falling inflation will be a tailwind to real estate investment activity, setting the stage for a recovery later this year.
The Bottom Line
June’s inflation reading supports CBRE’s view that the Fed will begin cutting interest rates in September. At 3.3%, core CPI had its lowest annual increase since April 2021. A 5.2% annual increase in shelter prices in June accounted for nearly 70% of the rise in core inflation. However, we expect shelter prices to ease later this year. Service sector inflation likely will remain sticky but overall inflation should continue to fall toward the Fed’s 2% target. Easing inflation and a softening labor market will push the 10-year Treasury yield to 4.1% by year-end. Lower interest rates will provide a tailwind to investment activity later this year and in 2025.
Figure 1: CBRE House View
