Good Tuesday morning from your Hometown lender,
Will the Fed cut and if so, how many times… I see at least 3 cuts or a total .
75% cuts coming before the end of the year. That might be one .50% cut and one .25% cut or three .25% cuts, but I do think we will see .75%.
Let’s start with a tidbit from Dr. Elliott Eisenberg.
25Q2 labor productivity growth was strong at 2.4% Y-o-Y. While 25Q1 was a dismal -1.8%, (the only negative reading since 22Q1) the latest result returns labor productivity growth to its post-pandemic 1.8% average. Strong productivity keeps inflation down despite good nominal compensation growth of 4%. 4%-2.4%=1.6% real labor cost growth, or 2.2% using the post-Covid average. These are well below the inflation rate, suggesting little if any wage inflation pressure. This is just one more component of the interest rate calculus.
Today we had the all-important CPI report (the Fed will get one more look at CPI next month before their September 17th meeting). The report, released by the Bureau of Labor Statistics, showed an increase of 0.2% in July, with an annual increase of 2.7%. The core CPI, which excludes volatile food and energy commodities, increased 0.3% in July to 3.1% annually. Inflation increases were mainly in line with what experts were predicting. Economists expected the overall CPI to range between 2.7% and 2.8% annually, while core CPI was expected to be between 3.0% and 3.1%. Betting markets still expect at least two rate cuts by the Federal Reserve the rest of 2025.
The bond market is mostly flat today with the 10yr not yield bouncing between 4.25% and 4.30%. That is a little bit wider daily range than we see but I don’t see much reason to be concerned. Markets are just relieved CPI was tame. It looks like corporations are generally writing the tariff check for the moment, helping avoid seeing inflation jump higher.
I found the below chart from Zillow interesting…
It shows where home prices are increasing and where they are not..
Stay safe and make today great!