November inflation report fuels optimism for Fed interest rate cut

The likelihood of a third Federal Reserve rate cut got higher with Wednesday’s Consumer Price Index from the U.S. Bureau of Labor Statistics, which met expectations from economists on inflation.

Headline inflation in November rose 2.7% year over year and 0.3% compared to October. Core inflation — which excludes volatile food and energy costs — rose by 0.3% month over month and 3.3% year over year.

Inflation on shelter costs remains high, rising 0.3% month over month, but that number represents a cooling from the 0.4% jump the month prior. Housing made up 45% of inflation. Taken together, the report is good news for a real estate industry desperate for mortgage rates to drop.

“While the Fed will likely cut interest rates again next week, it will still take time before this will bring household costs down,” said Move Concierge CEO Gabe Abshire in a statement. “If consumer prices don’t start dipping down soon, and inflation remains stubborn, the Fed likely won’t substantially cut interest rates in the near term.”

Annual core inflation has cooled considerably since peaking at 6.3% in August 2022, as has annual shelter costs, which peaked in March 2023 at 8.2%. This is little consolation to consumers, who’ve experienced flat wages while prices continue to rise.

Inflation was largely cited by voters for why they chose Donald Trump over Vice President Kamala Harris, who is part of the administration that presided over the rapid rise in consumer costs. Economists believe rampant inflation is credited to supply line disruptions during the pandemic and the two major COVID-19 stimulus bills passed in 2020 and 2021.

While inflation was a winning issue for Trump, his election clouds the outlook because of his proposal of steep tariffs on Mexico, Canada, and the so-called BRICS nations, which include China, Brazil, and Russia. Economists widely believe the size of the tariffs would push up consumer costs, particularly on newly built homes. The new build sector could also suffer from a labor shortage if Trump executes his promised mass deportation of immigrants

“This dichotomy in inflation stress will contribute to a tale of two housing markets in 2025,” said Bright MLS Chief Economist Lisa Sturtevant in a statement. “Higher-income individuals and families will be more active in the market. Existing homeowners who have accumulated significant housing equity will be in a good position to make a move-up purchase. But moderate-income individuals and families who want to purchase a home in 2025 are facing tighter budgets, more financial stress, and will find the housing market much more challenging.”