Intelligent Investment
Economic Watch: Fed Signals One Rate Cut This Year; Inflation Cools in May
June 12, 2024 2 Minute Read
Executive Summary
- The Federal Reserve kept the federal funds rate at a range of 5.25% to 5.5% today and forecast a single interest rate cut later this year. Fed officials were closely divided between enacting one or two cuts this year.
- The Consumer Price Index increased by 3.3% year-over-year in May, slightly less than consensus expectations of 3.4%. Core inflation, which excludes volatile food and energy prices, rose by 3.4% vs. expectations of 3.5%, making it the smallest year-over-year increase since 2021.
- Despite the Fed’s median forecast of a single rate cut this year, CBRE believes that inflation and economic growth will slow enough to justify two cuts beginning in September.
- High interest rates and a cautious Fed will keep real estate capital markets activity subdued before improving late in the year.
- Leasing activity likely will remain relatively resilient amid continued, albeit slower economic growth.
The Bottom Line
The Federal Reserve reduced its expected number of interest rate cuts for 2024 to one from three today. This more cautious outlook comes on the heels of continued strong job growth in May.
We expect that cooling inflation, as seen in May’s lower-than-expected CPI reading, will give the Fed policy flexibility. Therefore, CBRE still expects two rate cuts this year beginning in September.
We expect that commercial real estate investment activity will remain somewhat subdued before improving late in the year. Annual investment volume should be on par with that of 2023. Leasing activity will remain healthy amid continued economic growth.
Figure 1: CBRE House View
