We are one step closer to a rate cut by the Federal Reserve as consumer price inflation continues to calm down. The latest inflation rate of 2.3% is the slowest rise in about four years, but still above the target inflation rate of 2%. Prescription medicine prices rose by 2.3% even as non-prescription drug costs fell by 1%. These costs could dramatically change in the upcoming months, though they comprise just 1.3% of the overall consumer budget and inflation calculation. Medical service costs like visits to the doctor and hospitals take up a larger proportion, and these costs rose by 3.1%.    

The jumbo heavyweight of inflation is housing costs. Comprising one-third of the budget, that cost rose by a hefty 4%. Getting shelter costs under control with more housing supply (and not via disastrous rent control) will be the key to getting overall inflation fully tamed and for the Federal Reserve to “normalize,” which in my view means 4 to 6 additional rate cuts. Fed rate cuts with high inflation will not result in lower mortgage rates. However, rate cuts because of falling inflation will mean meaningfully lower mortgage rates.