The price of most construction materials plateaued at elevated levels during Q3 2024. Only lumber and wood panels have returned to traditional prices seen prior to 2020. That said, inflation did cool in the third quarter, leading the Federal Reserve to cut interest rates in September for the first time since early 2020. There is optimism that, as interest rates continue to decline, more projects will be funded, increasing construction demand.
Inflation & Interest Rates
Inflation continued to cool in the third quarter. The 12-month change in the Consumer Price Index (CPI), a common measure of inflation, dropped from 3.0% in June to 2.5% in August, its lowest level in three-and-a-half years. The 12-month change in the CPI for the Atlanta area followed suit, falling from 2.6% in June to 1.7% in August, below the Federal Reserve’s target of 2%.
The Federal Reserve, in response, cut interest rates 0.50% in September, the first rate reduction since early 2000. The Fed’s September 2024 Summary of Economic Projections further indicates that 17 of 19 Federal Open Market Committee participants expect at least one additional interest rate cut in 2024, and a majority expect two. The price of 30-Day Fed Funds futures, meanwhile, implies that 96% of market participants believe the Fed will cut rates again in November, and 75% expect a third rate cut in December.
SOURCES: U.S. Bureau of Labor Statistics; Board of Governors of the Federal Reserve System; CME Group, CME FedWatch Tool
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