Inflation data comes in cooler than expected
The Bureau of Labor Statistics released Consumer Price Index data for May 2024 yesterday morning. The annual inflation rate dipped from 3.4% in April 2024 to 3.3% in May 2024. Economists had predicted that the annual inflation rate would stay at 3.4%, and anything under would be seen as a ‘cool’ inflation report. The report came in lower, and most markets rallied.
Excluding food and energy prices, core CPI increased 0.2% month-over-month, and 3.4% from a year ago. Prices were mostly held in check by a 2% drop in energy prices.
Shelter inflation increased 0.4% month-over-month and was up 5.4% annually. Housing-related metrics have been one of the stickiest aspects of inflation for the past two years.
The Fed doesn’t move rates, suggests one cut in 2024
Federal Reserve Chairman Jerome Powell announced that interest rates would stay at the current levels. However, Chairman Powell didn’t sound sufficiently dove-ish to keep up the positive momentum from the cool inflation report.
Powell announced that the Fed doesn’t have confidence to lower rates yet, but he did say that no one on the board has rate hikes on the table. On the subject of future rate cuts, Powell indicated that one rate cut is on the table for 2024.
The overall takeaway is that the Fed sees progress but wants to see multiple months of positive data before they start to loosen policy. The economy has made progress, but isn’t where it needs to be for the Fed to start cutting interest rates.
How did mortgage rates react?
The national average rate for a 30-year, fixed-rate mortgage ended down 0.18% to 6.98%* on Wednesday.
The cool inflation report spurred the bond market to rally sharply in the morning, but clawed back some of the gains in the afternoon after Chairman Powell started speaking. The rally was still sharp enough to keep the national average for a 30-year, fixed-rate mortgage under 7.00% for the day. Will we hang on to these gains? Only the market knows.
* National average rates accurate as of 6/12/24 from MortgageNewsDaily.com and are not advertised rates from Guaranteed Rate.
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