Rising inflation in November won’t derail Fed interest rate cut

Annual inflation rose to 2.7% in November, slightly above the previous month’s annual inflation rate of 2.6%, according to the Consumer Price Index (CPI) released by the Bureau of Labor Statistics (BLS).

Inflation rose 0.3% on a monthly basis in November after four months of monthly increases of 0.2%, according to the BLS. The cost of housing was the main contributor to the monthly increase in November, accounting for almost 40% of the monthly increase for all items combined. The price of food products also increased by 0.4% in November. Energy prices rose 0.2% after remaining unchanged in October.

For now, the slight rise in inflation should not deter the Federal Reserve from cutting interest rates later this month. However, it indicates the central bank could face an uphill battle to return inflation to the 2% target rate, which could impact rate cuts in the new year, according to Jim Baird, director investments at Plante Moran Financial Advisors.

“The real questions are about what comes next,” Baird said in a statement. “The path forward for 2025 is less clear, but a Fed course correction toward keeping rates a little higher for a little longer seems increasingly likely.”

Last month, the Fed announced a much-anticipated quarter-point cut, lowering interest rates from 4.5% to 4.75%. Although inflation has moderated significantly over the past two years, from a high of 7% to 2.6%, Fed Chairman Jerome Powell said the Fed remains committed to bringing inflation back down. inflation to its target of 2%.

“Inflation continues to weigh down the average American family’s wallet, along with persistently high interest rates that impact everything from credit card spending to mortgage refinancing,” said Gabe Abshire , CEO of Move Concierge, in a press release. “While the Fed will likely cut interest rates again next week, it will still be some time before this lowers household costs. If consumer prices don’t start falling soon and the inflation remains stubborn, the Fed will probably not reduce interest rates substantially in the short term.

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Fall in mortgage rates

For housing, it’s a bit the same. High mortgage rates and housing prices have kept buyers away. Mortgage rates have fallen along with the Fed’s interest rate cut. Last week, according to Freddie Mac, they fell to their lowest level in more than a month.

The Fed is unlikely to rein in rate cuts, and that’s good news for the mortgage market, according to Danielle Hale, chief economist at Realtor.com.

“In the Fed’s most recent projections for September, members anticipated a policy rate of 3.4% by the end of 2025, but the typical investor currently anticipates only 3.9%, or two cuts fewer by the end of 2025,” Hale said in a statement. statement. “The benefit of this positioning is that there could be room for market interest rates to fall if the Fed’s projections come closer to reality.”

Hale said Realtor.com projects market mortgage rates will decline to 6.2% by the end of 2025, which, combined with other factors, should help buyers gain access to housing.

“This will help sales achieve a slight gain of 1.5% in 2025, even as price increases of 3.7% keep monthly payments relatively stable for homebuyers,” Hale said. “Stable monthly payments and income gains from a still robust economy and healthy job market will help slightly improve affordability in the year ahead.”

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Car insurance prices are falling

Auto insurance declined again in November, with the annual rate of increase declining for a seventh straight month, according to today’s CPI report. The annual increase of 12.7% is the lowest since September 2022.

Insurance costs are still high, but signs indicate the worst rate hikes may be over, according to Josh Damico, Jerry’s vice president of insurance operations. Damico said repair costs continue to rise rapidly, but most claims-related costs that caused insurers’ rates to rise, including prices for vehicles and parts and equipment, have declined or remained stable over the last few months. Used car and truck prices are down 16% from their peak in early 2022.

“Today’s data is consistent with what we’re hearing from carriers,” Damico said. “They’re starting to see some relief in claims costs, so they’re pausing rate increases and reassessing the situation and, in some cases, looking to roll back a little bit of these recent rate increases.”

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