Instant Reaction: CPI, August 14, 2024

Inflation is calmer, thereby setting the Fed Reserve up to start the rate-cutting process in September. Consumer prices rose by 2.9% in July and look to head towards the desired 2% in a few months. The Fed has indicated the need to normalize and move away from the current “restrictive” monetary policy and its willingness to cut if inflation moves towards 2% rather than waiting to reach 2%. Shelter costs decelerated to 5.0%, still high but clearly trending down as a temporary oversupply of new apartment units will further dent the figures. Auto insurance continues to rocket, up by 19% from a year ago. This does not bode well for property insurance bills.

Generally, the rate-cutting cycle is not one-and-done. Six to eight rounds of rate cuts all through 2025 look likely. Whoever sits in the White House in 2025 will see lower interest rates. However, a super-sized budget deficit could limit the decline in mortgage rates. More government borrowing means less mortgage money to lend. The new normal for mortgage rates will be around 6% and definitely not to 4% as was before COVID.