Inflation Meets Estimates, Rate Cut Still Likely

The latest inflation data leaves the door open for a rate cut at the Fed’s upcoming meeting. Meanwhile, signed contracts for new and existing homes dipped slightly from June to July. Home prices are still up compared to last year, though growth is slowing. Read on for the key takeaways.

·       Inflation Aligns with Estimates, Keeping Rate Cut in Play

·       New Home Sales Beat Forecasts

·       Annual Home Price Growth Cools Slightly

·       Additional Highlights: Housing, Growth and Unemployment

Inflation Aligns with Estimates, Keeping Rate Cut in Play

The latest inflation data is in, and it largely matched expectations. According to July’s Personal Consumption Expenditures (PCE) report, overall inflation rose 0.2% for the month, bringing the annual rate to 2.6%.

The Fed’s preferred inflation measure, Core PCE (which excludes food and energy), rose 0.3% in July and now stands at 2.9% year-over-year.

What’s the bottom line? With a dual mandate of price stability and full employment, the Fed must tread carefully. Persistent inflation may keep rates higher for longer, but weakening economic indicators could shift their stance toward easing.

Fed Chair Jerome Powell recently noted that the Fed is getting closer to cutting rates, but he emphasized that upcoming data will be key. Since this latest inflation report brought no surprises, a rate cut remains a viable option at the Fed’s next meeting on September 17.

Just as a quick reminder: When the Fed adjusts interest rates, it’s specifically targeting the Fed Funds Rate – a short-term rate used for overnight lending between banks. While this rate influences borrowing costs across the economy, including mortgages, it doesn’t directly set long-term mortgage rates.

Next up: All eyes are now on the August jobs report, due out September 5, which could play a key role in shaping the Fed’s next move.

New Home Sales Beat Forecasts

New home sales dipped slightly in July, falling 0.6% from June to an annual pace of 652,000 units. However, the number was above expectations, and June’s sales were revised up from 627,000 to 656,000.

There were 499,000 new homes on the market at the end of July, close to the highest levels since 2007. But only 121,000 of those homes are finished and ready to move into. The rest are still under construction or haven’t been started yet. So, while the total inventory looks high, the number of homes actually available now is still limited.

Also worth noting: the median new home price was $403,800, down 0.8% from June and 5.9% compared to last year. The median means half of the homes sold were priced above this number, and half were below. The drop in median price was largely due to a higher share of lower-priced homes being sold in July, which pulled the overall median down.

What’s the bottom line? This data reflects contracts signed in July – before mortgage rates began to drop. Since then, homebuilders have reported more buyer traffic, so future reports may show stronger sales.

Annual Home Price Growth Cools Slightly

The Case-Shiller Home Price Index – often considered the “gold standard” for tracking home values – showed home prices rose 0.1% from May to June before seasonal adjustments, but dipped 0.3% after. This is typical for spring, when seasonal adjustments smooth out expected increases, but because this year’s gains were smaller than usual, the adjusted numbers showed a slight decline.

Year over year, national home prices are up 1.9%, slightly slower than May’s 2.3% growth. Big cities continue to lead, with the 10-city index up 2.6% and the 20-city index up 2.1%.

The FHFA Index showed similar results: nearly flat month over month (-0.02% unadjusted, -0.2% adjusted), and a 2.6% gain compared to last year.

What’s the bottom line? Home prices are still rising compared to a year ago, though at a slower pace. However, if mortgage rates keep trending lower, stronger buyer demand could push price growth higher again.

Additional Highlights: Housing, Growth and Unemployment

Housing Market Activity Slows: Pending Home Sales (signed contracts for existing homes) slipped 0.4% in July compared to June, falling short of expectations. However, they were still 0.7% higher than a year ago. According to the National Association of REALTORS®, buyers remain cautious despite modest improvements in inventory and borrowing conditions.

Economic Growth Rebounds: The U.S. economy grew by 3.3% in Q2 2025, revised up from the initial 3.0% estimate. This marks a strong turnaround from the 0.5% decline in Q1, which was largely due to a surge in imports as businesses stocked up ahead of potential tariffs. Since imports subtract from GDP, fewer imports in Q2 helped lift overall growth. So far, the economy is averaging 1.4% growth for the first half of the year.

Labor Sector Under Pressure: New unemployment claims edged down to 229,000, but continuing claims remain elevated at 1.954 million. They've stayed above 1.9 million since mid-May, indicating more people are remaining unemployed for longer. Since unemployment benefits typically last 26 weeks, a rise in continuing claims as those benefits expire suggest a slowdown in hiring activity.

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