Robust inflation numbers in November show the Fed still has work to do. (iStock)
According to the Consumer Price Index (CPI), the annual inflation rate rose to 2.7% in November, slightly higher than the previous month's annual inflation rate of 2.6%. Published by the Bureau of Labor Statistics (BLS).
Inflation rose 0.3% on a monthly basis in November, after recording a 0.2% month-over-month increase for four months, according to the BLS. The biggest contributor to the monthly increase in November was housing costs, which accounted for nearly 40% of the monthly increase in all items. Food prices also rose 0.4% in November. Energy prices rose 0.2% after being flat in October.
For now, the slight rise in inflation is not expected to deter the Fed from cutting rates later this month. But Jim Baird, chief investment officer at Plante Moran Financial Advisors, said this suggests the central bank may struggle to get inflation to its 2% target rate. , said that could influence rate cuts in the new year.
“The real question is what happens next,” Baird said in a statement. “The path to 2025 is less clear, but it seems increasingly likely that the Fed will course correct to keep interest rates a little higher.”
Last month, the Federal Reserve announced a long-awaited quarter-point rate cut, lowering interest rates from 4.5% to 4.75%. Inflation has slowed significantly over the past two years from a peak of 7% to 2.6%, but Fed Chairman Jerome Powell said the Fed remains committed to returning inflation to its 2% target.
“Inflation continues to put pressure on the average American household's wallet, and persistently high interest rates have led to the shift from credit card spending to mortgage payments,” Gabe Abshire, CEO of Move Concierge, said in a statement. “Everything from refinancing to refinancing is being affected.” “The Fed is likely to cut rates again next week, but it will take some time for this to reduce household spending.If consumer prices do not start falling soon and inflation remains stubborn, the Fed will is unlikely to significantly reduce interest rates in the short term.
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The Fed lowers interest rates again, this time by a quarter of a point.
Decline in mortgage interest rates
The same goes for housing. High mortgage rates and home prices are deterring buyers. Mortgage rates fell in line with the Fed's interest rate cuts. Freddie Mac said last week it fell to its lowest level in more than a month.
Daniel Hale, chief economist at Realtor.com, said the Fed is unlikely to put the brakes on rate cuts, which is good news for the mortgage market.
“In the Fed's latest September outlook, members expected the policy rate to be 3.4% through the end of 2025, but typical investors are currently pricing in only 3.9%,” Hale said. “This means there will be two fewer rate cuts by the end of 2025.” statement. “The benefit of this position is that there may be room for market rates to fall if the Fed's outlook comes closer to reality.”
Hale said Realtor.com expects market mortgage rates to fall to 6.2% by the end of 2025, which, along with other factors, will make homes more accessible to buyers.
Mr Hale said: “This could result in modest sales growth of 1.5% in 2025, even though homebuyers' monthly payments remain relatively stable due to 3.7% price increases.'' ” he said. “Stable monthly payments and income growth due to a still robust economy and healthy labor market should improve affordability slightly over the coming year.”
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Car insurance becomes cheaper
According to today's CPI report, auto insurance fell again in November, with annual growth rates declining for the seventh consecutive month. The annual rate of increase of 12.7% was the smallest since September 2022.
Josh D'Amico, Jerry's vice president of insurance operations, said insurance costs remain high, but there are signs that the worst of rate hikes may be over. D'Amico said repair costs are still rising rapidly, but most of the claims-related costs that drive insurers to raise rates, such as vehicle prices and parts and equipment, have fallen or leveled off in recent months. He said that it has become. Used car and truck prices have fallen 16% from their peak in early 2022.
“Today's data is consistent with what we're hearing from carriers,” D'Amico said. “As claims costs begin to ease some, we are considering pausing rate hikes to reassess the situation and possibly reduce recent rate hikes a bit.”
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