Economic Watch: October’s Lower Inflation Will Keep Fed on Hold

Executive Summary

• The annual inflation rate fell to 3.2% in October from 3.7% in September, slightly below consensus expectations of 3.3%. An increase in shelter and food prices was offset by a decrease in energy prices, keeping inflation flat on a month-over-month basis.
• Core inflation, which excludes food and energy prices, rose by 4.0% year-over-year and 0.2% month-over-month, below expectations of 4.1% and 0.3%.
• With inflation steadily falling toward the Federal Reserve’s 2% target rate, CBRE expects commercial real estate investment activity to begin recovering by mid-2024.

The Bottom Line

The rate of inflation has been cut in half since the beginning of this year. Given the downward trend in price increases and signs of a cooling labor market, CBRE does not expect the Federal Reserve to raise interest rates again this year. As inflation continues to cool and the economy slows, the Fed could begin cutting rates as early as March 2024.

Even with a sharp drop in Treasury yields in response to today’s inflation reading, lending conditions remain tight. CBRE expects that commercial real estate investment will begin to recover by mid-2024 as interest rates stabilize. Resilience in the economy will support leasing activity.

Figure 1: CBRE House View