SVN® International Corp. Economic Update – Keeping our clients up-to-date about the latest real estate landscape trends.

In its June meeting, the Federal Open Market Committee (FOMC) decided to maintain the federal funds rate at 5.25%-5.50%, aligning with market expectations. This decision came as the May Consumer Price Index (CPI) showed a slight annual decline in inflation to 3.3%, with Core CPI rising by just 0.2%, the slowest pace since October 2023. Despite these positive signs, inflation remains above the Fed’s 2% target, prompting the Fed to adopt a cautious “wait and see” approach. The FOMC’s latest projections suggest only one rate cut by the end of 2024, contrasting with market forecasts that predict two cuts, indicating a more conservative stance from the Fed.

Recent economic data leading up to the meeting highlighted a mixed but resilient economic landscape. The Federal Reserve’s Beige Book reported modest growth across most regions, and the labor market added 272,000 jobs in May, significantly surpassing expectations. Construction spending in April showed a slight monthly decline but maintained strong annual growth, despite fluctuations. However, commercial real estate remains under pressure from high interest rates and shifting demand, particularly in sectors like downtown office spaces. This underscores the varied impacts of the Fed’s tightening policies across different segments of the economy.

Looking forward, the Fed’s future policy will hinge on inflation trends and broader economic stability. GDP growth projections remain steady at around 2% through 2026, while inflation expectations have been adjusted slightly upwards. Divergences between market expectations and the Fed’s outlook highlight ongoing uncertainty. The housing market shows signs of resilience, with home prices expected to rise through 2025 and a potential easing of the “lock-in effect” that has kept many homeowners from selling. Commercial real estate continues to face challenges, particularly as the market adjusts to prolonged higher interest rates. As the Fed monitors these developments, its decisions will play a crucial role in balancing inflation control and economic growth.

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