03/15/2024 | Press release | Distributed by Public on 03/15/2024 11:52
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Key Takeaways:
Headline CPI came in about in line with consensus and our expectations, though core inflation was a bit hotter than expected. Still, the underlying details were a bit more encouraging than the topline figure. We expect deflation in core goods to resume in future months as used autos auction data continues to show price contraction and supply chains continue to heal. Further, OER slowed after a surprise jump in January, and we continue to see disinflationary forces related to shelter in the pipeline. Two percentage points of the 3.2 percent year-over-year gain in CPI was due to lagged shelter data, and the BLS's own measure of new tenant rent was sharply negative in Q4 of last year. Over time, this should translate into lower measures of CPI shelter costs. Still, despite the caveats, we believe this CPI report combined with a warm PPI reading is unlikely to provide the "greater confidence" the Fed and Chair Powell are looking for to begin cutting interest rates soon. We continue to expect the first cut to occur in June with risks weighted toward a later cut rather than a sooner one.
Control group retail sales, which feed directly into the GDP estimate, were softer than expected and pose some modest downside risk to our Q1 2024 consumption forecast. Two consecutive weak control group retail sales figures suggest consumers may be retrenching to begin 2024, in line with our forecast for slowing economic growth. Still sluggish manufacturing data in the industrial production report and further weakening in small business optimism are also supportive of slower growth moving forward.
Nathaniel Drake
Economic and Strategic Research Group
March 15, 2024
Opinions, analyses, estimates, forecasts, and other views of Fannie Mae's Economic and Strategic Research (ESR) Group included in these materials should not be construed as indicating Fannie Mae's business prospects or expected results, are based on a number of assumptions, and are subject to change without notice. How this information affects Fannie Mae will depend on many factors. Although the ESR group bases its opinions, analyses, estimates, forecasts, and other views on information it considers reliable, it does not guarantee that the information provided in these materials is accurate, current, or suitable for any particular purpose. Changes in the assumptions or the information underlying these views could produce materially different results. The analyses, opinions, estimates, forecasts, and other views published by the ESR group represent the views of that group as of the date indicated and do not necessarily represent the views of Fannie Mae or its management.