"Inflation resistance mission accomplished"! Experts call on the Federal Reserve to cut interest rates: Rent has begun to normalize
Experts believe that inflation in the United States has been brought under control, with the year-on-year increase in CPI dropping to 2.9%. They are calling on the Federal Reserve to cut interest rates in September to support economic growth. Although costs such as housing remain high, the pace of price increases has significantly slowed down, and it is predicted that future data may further reflect this trend. The Federal Reserve has raised interest rates 11 times from March 2022 to July 2023 to address runaway inflation, and caution is needed in dealing with the impact of persistently high interest rates on the economy
According to the latest Consumer Price Index (CPI) report measuring the cost of daily goods and services, inflation in the United States seems to be under control after two years of rate hikes by the Federal Reserve— with the year-on-year price increase falling to 2.9%. ZipRecruiter's labor economist Julia Pollak stated that it is now time for the Federal Reserve to declare "mission accomplished".
The latest data suggests that while prices for rent, groceries, and services remain high, they will not accelerate as they did two years ago when the inflation rate peaked at 9.1% in June 2022. Although the latest data is still above the Federal Reserve's 2% target rate, the last time inflation was this low was in March 2021. Pollak commented on the current interest rate levels, saying, "If the Federal Reserve continues to tap the brakes, the labor market will continue to slow down."
To combat inflation, the Federal Reserve raised interest rates 11 times consecutively from March 2022 to July 2023, increasing the effective benchmark rate from near zero to 5.33%. Since then, the Federal Reserve has maintained stable rates. Pollak believes that the Federal Reserve should start cutting rates in September. The market generally expects a rate cut of at least 25 basis points in September.
Rate hikes increase borrowing costs, helping to curb inflation but may also slow down economic growth. By increasing the costs of mortgages, credit cards, and other loans, they can worsen consumers' situations. Additionally, they can hinder business investments, leading to reduced job opportunities and slower hiring.
Housing costs have remained relatively high, rising by 0.4% last month, contributing nearly 90% to overall inflation, according to the latest report. However, there is a lag in the way housing costs are reported in the CPI, meaning price changes may take several months to manifest, so current prices may not be reflected in the latest report.
While the impact of rising housing costs over the past few years on people's wallets should not be underestimated, the stagnation of housing and rental prices in recent months suggests that this deceleration may be reflected in future reports Noah Yosif, Chief Economist of the American Staffing Association, stated: "Recent data indicates that the rental market has entered a normalization process. This means that, for a long time after the Federal Reserve's first rate cut, the CPI will continue to show further deflation in housing costs."
Pollak noted that despite this, the long-standing housing shortage has been a major factor contributing to continuous price increases; therefore, they are "not particularly sensitive to restrictive monetary policies." She added: "The Federal Reserve should take a step back and let the market and policymakers address the issue of insufficient housing supply."
Pollak further stated: "In many ways, high interest rates exacerbate the (housing) issue, trapping homeowners and encouraging elderly Americans to age in place. High interest rates make real estate investors reluctant to borrow for financing the construction of homes and apartments."