The Weekly Update 7/19/2024
Interest Rate Cut Likely in September!
Since late last year I have been sharing the data around housing costs and that housing alone represents nearly 40% of the Consumer Price Index (CPI).
The June Core CPI was released last week and came in at +.06% month over month (MoM). Economists in general expected +.21% only missed by over 3x! Housing costs continue to roll down as Covid rents are being renewed at lower rental rates. (Source: www.apartmentlist.com, 6/30/24)
Mortgage rates for home buyers have dropped to about 6.75%, which will stop the contraction in home sales and start back toward growth. Mostly in sales volume and less in price appreciation, I think.
If you have read any of the monthly updates I write, The Seven Signs of a Changing Economy™, over the last several years, you know the Fed uses our Sign #1, Personal Consumption Expenditures (PCE) as its key measure for Inflation.
The Fed has had a self-imposed mandate and publicly reported PCE growth rate of 2% as their inflation goal. The three-month annualized PCE rate just fell to +2.10%
Of concern is how quickly the inflation rate is now dropping. What we would not want to see economically is for the Fed to keep interest rates restrictively high during a period where quantifiably inflation is rapidly reducing.
I think all of this adds up to an interest rate reduction at the conclusion of the Fed’s September 17th and 18th, 2024, meeting. Perhaps equally or more importantly, if jobless claims show weakness and the Fed chooses to wait for the September meeting to reduce rates, they could be late to the rate reduction party (again). Then they would face the possibility of reducing rates by one half percentage point versus the more normal one quarter percentage point.
If the rate cut is an unexpected one-half percent reduction, expect the upward trend in valuation of Corporate America to continue at an even stronger clip, as lower interest rates tend to push valuations higher.
At TWSG, we are well allocated for this and have our well thought out Investment Selection Matrix™, investment menu working in our collective TWSG family’s asset allocations.
I’m interested in your thoughts, comments, and observations. Feel welcome to call, email, or stop by the office and say Hi.
Respectfully,
James O. Lunney, CFP®
CERTIFIED FINANCIAL PLANNER™ Professional
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