The latest update from the Federal Reserve (Fed) underscores its view on the economy and inflation, as well as the conditions necessary for considering interest rate cuts.
Here are the key points:
- Inflation expectations align closely with the Fed’s 2% target.
- The labor market remains tight, though demand has eased and supply has increased.
- Over a six-month period, core Personal Consumption Expenditures (PCE) increased by 2.5% annually, with short-term inflation measures potentially influenced by temporary factors.
- The Fed is cautious about reducing the target range for interest rates until it’s more confident about inflation sustainably moving toward 2%.
- Various factors like higher rates, tighter lending standards, zoning regulations, and others have limited housing supply.
- Risks to achieving Fed goals are becoming more balanced, with continued attention to inflation risks.
- Housing demand has been supported by a strong labor market, remote work trends, and cash payments, mitigating the impact of higher rates.
- The adoption of new technologies such as AI and robotics could accelerate productivity growth.
- Market rents are softening, indicating a likely slowdown in housing services prices in the coming year.
- A decrease in labor demand and enhancements in labor supply are expected to contribute to a further slowdown in core services price inflation.
