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By Omar Mohammed
Reporter, Economy & Finance
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The Consumer Price Index (CPI) inflation reading fell in June, hitting its lowest level in a year, raising the prospect that the Federal Reserve will begin to slash borrowing costs, a development that could lower the cost of home loans later in the year.
Last month, CPI fell 0.1 percent on a monthly basis, and on a yearly basis, it accelerated by 3 percent slower than May's 3.3 percent, according to data from the U.S. Bureau of Labor Statistics, signaling a deceleration over the rate of price increases.
"For the first time since the pandemic, overall prices fell in June, surprising economists and increasing the likelihood of a September interest rate cut," Julia Pollak, ZipRecruiter's chief economist, said in a note shared with Newsweek.
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Starting in March 2022, the Federal Reserve hiked rates at their most aggressive pace in decades to bring to a halt soaring inflation that at one point rose to its highest level in 40 years. The move contributed to a jump in borrowing costs across the economy including for home loans. In October, mortgage rates rose to their highest since the turn of the century and have hovered at or near 7 percent over the last few months.
A continuing trajectory of slowing inflation bolsters the view that the rate of price increases is moving closer to the central bank's target of 2 percent. The more consistent that downward path, the likelier it could lead policymakers to begin their cycle of slashing borrowing costs. Thursday's cooler CPI reading adds to the narrative that the Fed may cut rates in the second half of the year.
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Some analysts suggested that the Fed may even move sooner than September.
"Today's numbers instill more confidence that inflation is headed towards the central bank's target," Elizabeth Renter, a senior Economist at NerdWallet, said in a note shared with Newsweek. "It makes the likelihood of a September rate cut all the more likely, and a July cut not entirely off the table."
Housing economists suggested that the improved June inflation reading was an encouraging sign for those looking to buy a home at some point over the coming year.
"Expectation should be that we might start to see rates again come down by the end of the year," Ralph McLaughlin, senior economist at Realtor.com, told Newsweek.
The drop in mortgage rates is likely to be accompanied by a rise in the supply of homes for sale, offering prospective homeowners more choice and potentially cheaper home loans than what's currently available.
"Now that there's more on the market and that rates may start to come down, there could be a nice window where if they find that forever house that has been elusive for the last four years and they can afford it," McLaughlin said. "It may not be a bad time to get in the market, especially if rates are going to come down over maybe the next one to two years and they find what they like."
McLaughlin also suggested that buyers should be patient in expecting the Federal Reserve to cut rates as aggressively as they raised them, as inflation was still above the central bank's 2 percent target.
"The Fed has been very clear that they want to take the stairs down, not the elevator, so we shouldn't expect them to really crank through rate revisions like they did when they were increasing rates," he told Newsweek. "What it means for the housing market, the future looks good, the glide slope looks great. They're on it, but they're on a very long path to landing."
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