Inflation is expected to persist, with Veros forecasting a rate of 2.9% at the end of 2024.
Inflation Trends
June 2024 brought positive news on the inflation front. The CPI increased by 3% year-over-year, the smallest annual gain in over three years. Additionally, prices dipped slightly compared to the previous month, offering some relief to consumers. These developments suggest that inflationary pressures are easing, providing welcome relief for the Federal Reserve.
The Fed aims to keep prices stable by targeting 2% annual inflation as measured by the Personal Consumption Expenditures (PCE) price index. The Commerce Department reported that inflation, as measured by the PCE price index, increased 0.1% in June 2024 compared to the previous month and 2.5% year-over-year. These figures represent a modest cooling from May’s data, suggesting that inflation is moving toward the Fed’s 2% target.

Core inflation, which excludes volatile food and energy prices, continued to ease, rising 3.3% year-over-year. However, a key factor complicating the Fed’s efforts to cool inflation is the shelter component. Housing costs, which account for a significant 36% of the overall CPI, have been stubbornly high. While overall inflation has moderated, shelter inflation has been slower to decline, dropping from a peak of 8.2% in March 2023 to 5.1% in June 2024. This is still notably higher than the pre-pandemic level.
Fed Policy Outlook
Inflation has proven resilient, despite the Federal Reserve’s efforts to cool prices. While progress has been made since the peak two years ago, the central bank is still grappling with persistent inflationary pressures. The Fed is walking a tightrope, balancing the need to lower inflation with the potential for economic slowdown.
A potential rate cut is on the horizon, fueled by recent positive inflation data. However, the path forward is uncertain. While shelter costs, a key driver of inflation, are showing signs of moderation, the overall inflation rate has been stubbornly close to the 3% mark. A single upward tick could easily derail the Fed’s plans for a rate cut. Conversely, consistent declines in the coming months could pave the way for a quarter-point reduction by year-end.
Ultimately, the Fed’s decision will hinge on a delicate assessment of incoming economic data, including inflation and employment figures.
Economic Implications
A rate reduction this fall — the first since the pandemic — would amount to a momentous shift and a potential boost to the economy. Fed rate cuts, over time, typically lower borrowing costs for such things as mortgages, auto loans and credit cards. A single cut in the Fed’s key rate wouldn’t by itself make much difference to the economy. Some borrowing costs have already dropped slightly in anticipation of the move. As a result, the main question for the central bank will be: How fast and how far will the policymakers ultimately cut rates? Veros expects inflation to remain sticky throughout 2024 and expects only one rate cut this year.