Intelligent Investment

Economic Watch: Slowly Declining Inflation Likely Will Keep Fed on Hold

December 12, 2023 2 Minute Read

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Executive Summary

  • The annual headline inflation rate fell to 3.1% in November from 3.2% in October, in line with consensus expectations. Increases in food and shelter costs were offset by falling energy prices, keeping inflation at just 0.1% on a month-over-month basis.
  • Core inflation, which excludes food and energy prices, rose by 4.0% year-over-year and 0.3% month-over-month, also in line with consensus expectations.
  • We expect the Fed will not raise the federal funds rate at its final meeting of the year tomorrow. Fed Chairman Jerome Powell likely will reiterate the central bank’s commitment to lowering inflation to its 2% target by keeping monetary policy restrictive.
  • A fall in the 10-year Treasury rate over the past two months has improved capital markets sentiment, but CBRE does not expect a broad recovery in commercial real estate investment activity until mid-2024.

The Bottom Line

While significant progress on inflation has been made, core CPI remains well above the Fed’s 2% target. High inflation and a resilient labor market likely will keep the Fed from beginning to cut rates until at least Q2 2024.

Even with the 10-year Treasury yield down about 80 bps from October highs, borrowing rates remain elevated compared with levels over the past several years. CBRE expects that commercial real estate investment will remain subdued before beginning to recover by mid-2024. Leasing activity will be supported by resilience in the economy.

Figure 1: CBRE House View

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