Good News for Home Buyers as Interest Rates Set to Be Slashed

The federal reserve has been signaling potential interest rate cuts as the presidential race heats up.

At a Glance

• Consumer prices rose 2.5% year-over-year in August, marking the lowest inflation rate since February 2021. However, it’s important to remember that inflation is cumulative – it’s still going up, just at a slower rate.
• The Federal Reserve is expected to cut interest rates by 0.25% next week
• Core inflation, excluding food and energy, remained steady at 3.2% year-over-year
• Cooling inflation could influence the final weeks of the presidential race

Inflation Continues to “Ease”

The U.S. economy received welcome news as inflation continued its downward trend, reaching a three-year low in August. According to the Labor Department, consumer prices rose by 2.5% compared to the previous year, down from July’s 2.9% increase. The Federal Reserve targets 2% inflation.

Core inflation, which excludes volatile food and energy prices, held steady at 3.2% year-over-year. From July to August, overall prices saw a moderate increase of 0.2%, while core prices rose by 0.3%. These figures indicate that inflationary pressures are continuing to subside, though some sectors still face challenges.

Federal Reserve’s Next Move

The latest inflation data strengthens expectations that the Federal Reserve will cut interest rates in the near future. Many economists anticipate a 0.25% rate cut as early as next week. Lower interest rates would reduce borrowing costs for mortgages, auto loans, and credit cards, potentially stimulating economic growth.

“Today’s report will add to confidence within the Fed that inflation is indeed on a sustainable path towards 2%,” the Fed’s target level, Carl Weinberg, chief economist at High Frequency Economics, wrote in a note to clients. 

Federal Reserve Chair Jerome Powell has noted that inflation is coming under control and suggested that the job market is unlikely to be a source of inflationary pressure. This assessment further supports the possibility of imminent rate cuts.

While the overall trend is positive, many Americans still feel the pinch of higher prices. Grocery prices, though unchanged from July to August, remain 20% higher than pre-pandemic levels. However, there are signs of relief in some areas. Gas prices fell 0.6% from July to August and are down 10.6% year-over-year. Used car prices also dropped 1% last month and 10.4% compared to the previous year.