Inflation, combined with September’s strong jobs report, suggests that the Fed might be rethinking how quickly to cut the Federal Funds Rate, says Windermere’s Principal Economist Jeff Tucker.
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Today’s number you should know: 2.4 percent.
That’s the annual CPI inflation rate in September, meaning how much the Consumer Price Index climbed from one year ago. This was a step down from 2.5 percent in August, but it didn’t drop as much as the consensus forecast, which was expecting 2.3 percent.
Another data point is the implied annual rate of inflation based on the monthly change: 2.2 percent. You can see that it’s been more volatile, including some overheating back in Q1, but in general, it’s been cool enough to bring annual inflation down.
Inflation has had a long, rocky path downward since it peaked at 9.1 percent in summer 2022. This is another step in the right direction, but it’s still a little concerning that it’s not dropping faster.
Combined with the strong September jobs report I discussed last week, that means the Fed might be having second thoughts about how quickly they need to cut the Federal Funds Rate, especially after they started it off with a bang by cutting half a point in September.
Now, there’s even some discussion of the Fed pausing on rate cuts at their next meeting in November.
In the meantime, the combination of renewed labor market strength and a slower cooldown in inflation is enough to push up long-term yields, like mortgage rates, which brings me to the other number to know right now: 6.64 percent.
That’s where the 30-year mortgage rate stood on Friday, Oct. 11, according to Mortgage News Daily. It’s up about half a point from where it stood one month ago, though it’s still down about 1 full point from where it was at this time last year.
Looking ahead, for mortgage rates to resume falling, we probably need either some reassuring data showing inflation cooling down or need to see more signs of labor market deterioration — or both. Interest rates went up so much because the economy was running hot, arguably overheating, for a couple of years, so now markets need to see more convincing evidence of a cooldown to get us out of that high-rate environment.
Jeff Tucker is the Principal Economist for Windermere Real Estate in Seattle, Washington. Connect with him on X or Facebook.