Real estate has been holding its breath for the Federal Reserve’s first interest rate cuts in more than two years, but the central bank’s next move is likely to be on the tempered side.
The Fed may take a more cautious approach with monetary policy after a hotter-than-expected report on the core Consumer Price Index with a likely 25 basis-point cut. Some were still forecasting a 50 basis-point cut with one week left until authorities are set to meet.
Core CPI doesn’t include food and energy prices, which are more volatile than other price points analyzed in the data. Inman reported the metric is up 3.26 percent year-over-year, due to increased costs for shelter, airline fares, car insurance, education and apparel.
Pantheon Macroeconomics chief economist Ian Shepherdson tied rising core CPI to lagging rent data and “sampling noise.” Shepherdson told Inman he expected core CPI inflation to fall to 2 percent by the first half of next year, likely not soon enough to change the Fed’s outlook.
A majority of economists who responded to a Reuters poll this week said the Fed will lower interest rates by 25 basis points at each of its three policy meetings in 2024. Only nine of 101 told the outlet they expected a cut of 50 basis points.
The CME FedWatch tool dropped the odds of a 50 basis-point slash from 44 percent to 15 percent.
That doesn’t mean all hope is lost for a 50 basis-point cut next week, as the Fed has previously upended expectations.
“Inflation remains cool enough that the Fed could still surprise with a 50 basis-point cut to get ahead of further weakness in the labor market or simply project the possibility of larger cuts down the road,” Redfin economist Chen Zhao said in a blog post. Further rate cuts are still anticipated in November and December.
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Developers and investors are hoping for a more immediate reprieve on borrowing costs, which have skyrocketed since the Fed started hiking rates to combat inflation in March 2022. Fed policymakers are set to meet and make a determination next week.