The Numbers You Need to Know: Is the Fed Having Second Thoughts on Rate Cuts?
The drop in inflation, combined with a strong September jobs report, suggests the Fed may be reconsidering how quickly it can cut the Federal Funds Rate, said Windermere chief economist Jeff Tucker.
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Today’s number you should know: 2.4 percent.
That’s the annual CPI inflation rate for September, which means how much the Consumer Price Index has risen from one year ago. This was a step down from 2.5 percent in August, but not as much as the consensus forecast, which expected 2.3 percent.
Another data point is the annualized rate of inflation based on the monthly change: 2.2 percent. You can see that it’s been very volatile, including some extreme heat back in Q1, but generally, it’s been cool enough to moderate inflation for the year.
Inflation has had a long, rocky downward path since peaking at 9.1 percent in the summer of 2022. This is another step in the right direction, but it’s still a bit concerning that you’re not going down fast.
Combined with the strong September jobs report I discussed last week, that means the Fed may be having second thoughts about how quickly they need to cut the Federal Funds Rate, especially after starting it off with a bang by cutting half a point in September.
Now, there is even talk of the Fed holding off on lowering rates at their next meeting in November.
For now, the combination of renewed labor market strength and a gradual decline in inflation is enough to raise long-term yields, like mortgage rates, which brings me to another value I know right now: 6.64 percent.
That’s where the 30-year mortgage rate stands on Friday, October 11according to Mortgage News Daily. It’s up about half a point from where it stood last month, though still down about 1 full point from where it was at this time last year.
Looking ahead, for mortgage rates to start to come down, we probably need some solid data showing inflation or we need to see more signs of a labor market downturn – or both. Interest rates have gone up because the economy has been overheated, arguably overheated, for a few years, so now the markets need to see strong evidence of a rate cut to get us out of that high rate zone.
Jeff Tucker is the Principal Economist of Windermere Real Estate in Seattle, Washington. Contact him on X or Facebook.
