Today, the Federal Reserve has announced that it is holding rates steady, according to Jeff Cox of CNBC. “Central bankers made no obvious indications, though, that a reduction is imminent, choosing to maintain language that indicates ongoing concerns about economic conditions, albeit with progress.”

In a post-meeting statement, the Federal Open Market Committee noted:

“The Committee judges that the risks to achieving its employment and inflation goals continue to move into better balance. Inflation has eased over the past year but remains somewhat elevated…In recent months, there has been some further progress toward the Committee’s 2 percent inflation objective.”

That said, Christopher Rugaber of AP News reports that the Fed signaled a potential interest rate cut as early as September, marking a significant shift in its monetary policy. This move comes after two years of aggressive inflation fighting and maintaining the benchmark rate at a near-quarter-century high. While a single rate cut wouldn’t significantly impact the economy, it would lower borrowing costs for mortgages, auto loans, and credit cards. The timing and pace of rate cuts are crucial, with futures markets pricing in a 64% likelihood of three cuts in 2024. 

According to Howard Schneider of Reuters, the Fed was expected to maintain current interest rates at its two-day policy meeting. Recent data shows the Fed’s preferred personal consumption expenditures price index rose by 2.5% in June, down from 2.6% in May, bringing inflation closer to the 2% target. The economy grew at a 2.8% annualized rate in Q2, surpassing expectations. While some data points to economic weakness, overall indicators suggest a balanced economic outlook. Overall, inflation is trending downward:

Source: Reuters (July 2024)

Indeed, Nick Timiraos of the Wall Street Journal reported that the Fed was unlikely to change interest rates at today’s meeting but will likely signal a rate cut in September. This shift is due to improving inflation data, a cooling labor market, and a changing risk assessment. Inflation decreased to 2.6% in June from 4.3% a year earlier, while unemployment rose to 4.1%. Fed officials are weighing the risks of cutting rates too soon against waiting too long, with some arguing that the current restrictive policy may no longer be necessary given the economic conditions.

Economic growth

Jing Fu of the National Association of Home Builders (NAHB) reports on strong GDP growth data for Q2. The U.S. economy grew at a 2.8% annual rate in Q2 2024, doubling the 1.4% growth of Q1. This growth was driven by increases in consumer spending (2.3%), private inventory investment, and nonresidential fixed investment (5.2%). Inflation showed signs of cooling, with the GDP price index rising 2.3%, down from 3.1% in Q1. 

Source: NAHB (July 2024)

Derek Saul of Forbes reports that this reading significantly outpaces economist estimates of 2.1%. This robust growth defies long-standing concerns about an economic slowdown despite recent anxiety about corporate profit growth causing market volatility. The GDP growth rate is above the 2014-2019 median quarterly growth of 2.4%, indicating a strong economic performance despite high interest rates and lingering inflation concerns. 

Paul Wiseman of AP News reports on the data, highlighting that consumer spending, which increased at a 2.3% annual rate, and business investment, particularly an 11.6% rise in equipment investment, were key drivers of growth. The report suggests the U.S. economy is approaching a “soft landing,” where high interest rates control inflation without causing a recession. As noted above, the Fed is expected to consider rate cuts soon, possibly in September, as inflation trends towards their 2% target.

Source: AP News (July 2024)

On the consumer side, Na Zhao of NAHB reports that personal income increased by 0.2% in June, down from 0.4% in May, primarily driven by wage and salary gains. Real disposable income rose 0.1%, slowing from May’s 0.3% increase. Personal consumption expenditures grew 0.3%, with real spending up 0.2%. As spending outpaced income growth, the personal savings rate fell to 3.4%, less than half of the 2019 pre-pandemic average of 7.4%. This trend suggests consumers are using savings to maintain spending levels, which may lead to reduced consumer spending in the future.

Lucia Mutikani of Reuters notes that there is still some pain in the economy as higher rates work their way through the system. “Economists also estimate that much of the Fed’s rate hikes is still to be felt. State and local government revenues are also slowing, which could erode spending. There are also worries about new tariffs, which could see businesses front-loading imports if former President Donald Trump is returned to the White House in November’s presidential election. Nonetheless, a recession is not expected, with monetary policy easing anticipated this year.”

Rent data

Zumper released its National Rent Report a few days ago, highlighting that the national average rent for one-bedrooms rose 1.7% in July to $1,531, while two-bedrooms jumped 2.6% to $1,911. This is the largest growth rate Zumper has recorded since July 2023, when growth rates were up around 4-5%. 

Source: Zumper (July 2024)

Zumper CEO Anthemos Georgiades comments: 

“The fact that Zumper shows national rent growth at a 12-month high at the same time as the U.S. delivers a record 50-year high of new supply shows you just how strong renter demand is today…Renters are feeling more confident about the economy and the labor market, and they also hold the power in today’s market, with generous concessions being offered to commit to a new lease.”

Of note, Zumper reports on a few local highlights:

• Rents in all major Texas markets are falling as the state has added over 100k new apartment units this year.
• Some Midwest and Upland South areas are seeing annual rent price growth rates larger than New York City due to consistent demand and limited inventory.
• NYC one-bedroom rent is up 9.1% annually to $4,350, reaching a record high.

That said Jiayi Xu and Danielle Hale of Realtor.com report on some softness in rent growth. In June 2024, the U.S. median rent continued to decline year over year for the 11th month, down $7 (-0.4%) for 0-2 bedroom properties across the top 50 metros. The median asking rent was $1,743, up by $13 from last month. Despite the 11th month of decline, the U.S. median rent was just $11 less (-0.6%) than the peak in August 2022.

Source: Realtor.com (July 2024)

According to Zillow’s June Rental Market Report, the rental market improved as the summer started. Rents are growing at their fastest annual pace in nearly a year, with the typical rent across the U.S. now at $2,054, up 3.5% from last year. Monthly rent growth was normal for this time of year, increasing by 0.5% in June. Concessions offered by landlords have flattened, indicating increased confidence in filling vacant units. Here are some additional highlights from the report:

• The typical U.S. rent was $2,054 in June, up 0.5% monthly. The pre-pandemic average month-over-month change for this time of year is 0.6%.
• Since the beginning of the pandemic, rents have increased by 32.8%.
• Rents are now 3.5% higher than last year.
• Rents are up from year-ago levels in 48 of the 50 largest metro areas. Annual rent increases are highest in Hartford (7.8%), Cleveland (7.2%), Louisville (6.8%), Providence (6.3%) and Milwaukee (5.7%).