Intelligent Investment
Economic Watch: Higher Inflation Likely Pushes First Rate Cut to July
April 10, 2024 3 Minute Read
Executive Summary
- The Consumer Price Index (CPI) increased by 0.4% in March and 3.5% year-over-year, both slightly above respective market expectations of 0.3% and 3.4%. Shelter and energy costs accounted for most of the increase.
- Core inflation, which excludes food and energy prices, also rose by 0.4% for the month and 3.8% over the past year vs. respective expectations of 0.3% and 3.7%.
- We expect that March’s CPI reading will reinforce the Fed’s cautious approach and likely delays the first rate cut to July from June.
- Elevated long-term interest rates will keep real estate investment activity sluggish through midyear before beginning to pick up in the second half of 2024.
The Bottom Line
March’s higher-than-expected inflation reading makes it less likely that the Fed will cut rates before July. Shelter and motor vehicle insurance costs drove most of the rise in core inflation last month but any further increases are expected to ease over the coming months. This, along with slowing wage growth, leads us to believe that inflation will not significantly accelerate. Volatility in monthly readings will continue, but inflation should gradually fall throughout the year. This will ease borrowing costs and push the 10-year Treasury yield back to the upper 3% range by year-end.
Higher interest rates will limit real estate investment activity through midyear. However, we expect that a slow decline in long-term rates amid slowing economic growth will clear the way for a mild pickup in investment activity later this year. A stronger rebound in leasing activity is expected due to continued resilience of the economy.
Figure 1: CBRE House View
