Will Cooling Inflation Lead to Fed Rate Cuts?
Inflation showed signs of cooling in August, reaching a three-year low despite persistent high housing costs, setting the stage for potential Federal Reserve rate cuts. The Consumer Price Index (CPI) increased by 0.2% in August, maintaining the same pace as July. Core inflation, excluding food and energy, rose by 0.3%, with shelter costs continuing to be a significant driver. Shelter costs, although trending downward since early 2023, still contribute over 70% to the core inflation increase, highlighting the Fed’s limited ability to directly address these rising housing expenses.
For the homebuilding and development industry, the news is mixed. While the Fed’s likely rate cuts could relieve some pressure on the housing market, the primary solution to controlling housing inflation remains increasing supply. With current constraints on financing potentially hindering new developments, a balanced approach to expanding housing supply will be crucial. Real-time data suggests that with more apartment supply coming online, shelter costs may continue to ease, offering cautious optimism for future market conditions.