Intelligent Investment
Economic Watch: Fed Holds Rates Steady; September Rate Cut Still Likely
July 31, 2024 3 Minute Read
Executive Summary
- The Federal Reserve kept the federal funds rate at a range of 5.25% to 5.5% today and noted continued progress on lowering inflation.
- The Fed will continue to reduce its balance sheet (quantitative tightening) by $60 billion per month for the rest of the year.
- CBRE expects that the U.S. economy will achieve a soft landing this year. The Fed remains attentive to balancing risks between a softening labor market and resurgent inflation.
- We expect two Fed rate cuts in 2024, starting at the next policy meeting in September.
- We expect that inflation will continue to fall in H2, enabling the 10-year Treasury yield to decline to 4.0% by year-end. Lower interest rates in H2 should lead to more real estate investment activity.
- Office leasing activity likely will remain resilient, but slower economic growth will be a headwind.
The Bottom Line
We still expect the Fed to make two 25-basis-point cuts in interest rates this year, one in September and the other in December.
We do not foresee inflation—though sticky—accelerating over the near term. The factors tempering the inflation outlook include slower housing cost increases, easing wage growth and a more balanced labor market.
We expect that the 10-year Treasury yield will fall to 4.0% by year-end. This in turn should cause an increase in 2024 real estate investment activity by as much as 5%. CBRE forecasts only a modest increase in office leasing activity this year, while industrial leasing will remain subdued.
Figure 1: CBRE House View
