Prices for most construction materials were flat at elevated levels during the fourth quarter. With two more interest rate cuts, and U.S. elections over, Q4 surveys show improved confidence among construction executives. Stronger economic growth projected in 2025, and an uptick in inflation, however, may slow further interest rate cuts until the second half of this year.
Inflation & Interest Rates
Inflation ticked up in the fourth quarter but remains lower than a year ago. The 12-month change in the Consumer Price Index (CPI), a common measure of inflation, rose from 2.5% in August to 2.9% in December, which is still 0.5% lower than December 2023. The 12-month change in the CPI for the Atlanta area likewise rose from 1.7% in August to 2.6% in December, which is still 1.0% lower than a year ago.
The Federal Reserve made its second and third consecutive interest rate cuts in the fourth quarter of 2024, 0.25% in November and December, leaving the target range for the federal funds rate at 4.25% to 4.50% to close the year. The Fed indicated in December that, in comparison to the previous quarter, its Federal Open Market Committee (FOMC) participants now expect higher gross domestic product growth, lower unemployment, and higher inflation in 2025. While these projections indicate stronger economic growth, a majority of FOMC participants now expect only two 0.25% interest rate cuts in 2025, down from the four expected cuts indicated in September. The price of 30-Day Fed Funds futures further implies that a majority of market participants believe that those 2025 interest rate cuts will not begin until June.
SOURCES: U.S. Bureau of Labor Statistics; Board of Governors of the Federal Reserve System; CME Group, CME FedWatch Tool; JPMorgan Chase & Co.
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