If there was any doubt that the Federal Reserve’s half-point interest rate cut was the right move, those doubts are fading, and there’s reason to support another cut in the coming months.
That’s because the U.S. Bureau of Labor Statistics’s Consumer Price Index (CPI) for September fell by 0.1 percentage points compared to August and sits at a measured 2.4% year-over-year. Year-over-year core inflation — which omits food and energy costs — rose 3.3%, which is 0.1 percentage points higher than August.
The year-over-year number for shelter costs — which is weighted a third of the index — also fell to 4.9% in September from 5.2% in August to 4.9%, and it’s down from the 8.2% peak in March 2023. Those costs account for 65% of September core inflation.
“With trading markets currently pricing in two 25 bps [interest rate] cuts — one each in November and December — and continued signs that inflation is waning, it seems that markets are correctly pricing in these cuts,” said Realtor.com Senior Economist Ralph McLaughlin in a statement. “As a result, we will likely see the 10-year treasury stabilize. This should lead to relatively stable mortgage rates until PCE data — the Fed’s preferred measure of inflation — are released later in the month.”
Despite inflation inching to the Fed’s 2% inflation target, the CPI report sends a slightly mixed signal relative to the jobs report last week, which showed an added 254,000 non-farm payroll jobs in September. That number is higher than the monthly average of 203,000 added jobs over the last 12 months. Wage growth also accelerated to 4% in September.
The Fed was waiting for the labor market to soften before cutting rates. That appeared to be happening in the runup to September, but last week’s report showed the opposite. Still, with inflation metrics continuing to cool or at least stay even, economists are optimistic that more rate cuts will happen before the end of the year.
“What does all of this economic data mean for prospective homebuyers and sellers this fall?” asked Bright MLS Chief Economist Lisa Sturtevant in a statement. “Lower inflation suggests that mortgage rates will come down further this fall. However, mortgage rates are impacted by broader economic conditions. If labor market conditions continue to outpace expectations, we could see mortgage rates increase or at least not fall further. We already saw an uptick in mortgage rates this week on the heels of the strong jobs report.”
Mortgage rates on Wednesday ticked up to 6.35% on HousingWire’s Mortgage Rates Center, and up to 6.67% at Mortgage News Daily.
