Inflation is cooling. But stubbornly high housing costs could spark a flare-up and a rate hike by year-end, chief economist warns.
From Yahoo Finance: 2025-05-30 19:58:00
The Fed’s preferred inflation measure, the PCE index, cooled in April, but inflation could heat back up due to high housing costs. Stifel’s chief economist predicts a rate hike by year-end, citing the still-hot housing market as a key factor.
Recent inflation data shows housing prices rising, with the shelter component up 4%. Stifel’s economist sees high housing costs as the main driver behind inflation, making it difficult for the Fed to achieve sustainable levels.
Economic uncertainty has slowed buyer demand, keeping housing costs elevated. Existing owners are hesitant to sell and give up low mortgage rates, worsening the lock-in effect. As housing costs stay high, inflation is expected to climb.
Chief economist at LPL Financial expects the latest PCE report to be the lowest inflation print of 2025, anticipating prices to reaccelerate. The Fed may need to keep rates high to cool the economy down amid rising inflation concerns.
Stifel’s economist suggests the Fed may need to act fast to cut rates to combat slowing GDP growth. However, higher inflation later in the year could shift the conversation to rate hikes, leading to increased mortgage rates and exacerbating the lock-in effect.