NEW YORK CITY--The latest CPI report is not as bad as it looked, the Fed understands this and therefore will proceed with rate cuts totaling at least 75 bps—in 2024.
That was the message from Dr. Thomas LaSalvia, Moody's head of commercial real estate economics, in his keynote presentation at GlobeSt.'s Spring Net Lease conference, held Wednesday at the Marriott Marquis in Times Square.
"I still believe in a 50 to 75 bps cut this year," LaSalvia said, to a burst of applause from the audience.
LaSalvia said the uptick in the CPI was due to a spike in shelter inflation, driven in part by single-family rental properties that have seen rent increases while multifamily rents flatten. But the shelter inflation metric is not as bad as it looks, he explained.
"We see shelter inflation running pretty high. There's been some sensationalism and hyperbole about this, but the problem is within the calculations," he said.
According to LaSalvia, while single-family rental price increases are impacting the shelter inflation rate, the lion's share of the shelter metric—74%, according to the Moody's economist—is the owner's equivalent rent.
"The problem we have—and why I'm not concerned about some of these CPI trends—is owner's equivalent rent. This is the rent an owner of the property could get if they put it on the market, and that has nothing to do with what people are actually paying the property," LaSalvia said.
Because the Fed is focused on inflation's impact on middle- and low-income households, the owner's equivalent rent won't be a big influence on the central bank's decision on whether to cut rates later this year, Moody's chief CRE economist said.
"The Fed understands the nuances," he said. "The big takeaway from this is that the shelter inflation component of the CPI is not consistent with exactly what the Fed is actually looking at in terms of whether or not they're going to cut rates."
"So, I think they're still going to cut—it may not be in June—but they're still going to cut," LaSalvia said. "I still believe in a 50 to 75 bps cut this year."