John’s Finance Corner: Inflation Cools as Fed Eyes Another Rate Cut
With the government still shut down, economic data has remained limited but the release of last week’s Consumer Price Index (CPI) report offered a bit of clarity on inflation and market direction.
The CPI showed that consumer inflation rose 0.3% for the month and 3% year over year, both coming in slightly below expectations. The biggest contributor to September’s increase was higher energy costs, particularly gasoline though those prices have since eased.
Meanwhile, core inflation, which excludes food and energy, increased just 0.2% for the month and fell from 3.1% to 3.0% annually. That softer reading is a positive sign for the broader economy.
A major driver of inflation, shelter costs, makes up 35% of the headline CPI and 44% of the core reading. For the first time in months, shelter costs declined, helping to pull overall inflation lower than expected. This moderation is welcome news for both consumers and policymakers.
Despite this progress, the Federal Reserve continues to navigate a narrow path. Inflation remains above its long-term target, yet the broader economy — and especially the labor market is showing signs of slowing. Markets are now anticipating another quarter-point rate cut at this week’s Fed meeting, following the reduction made in September.
It’s important to note that when the Fed adjusts rates, it’s specifically changing the Federal Funds Rate the short-term rate banks charge one another for overnight lending. While this indirectly influences borrowing costs, it doesn’t directly set mortgage rates or other long-term rates.
We’ll know more when the Fed concludes its meeting on Wednesday, but for now, stable mortgage rates and cooling inflation suggest that financial markets are beginning to find a bit of balance again.
John Lamberg
MORTGAGE LOAN ORIGINATOR
NMLS 189233
