US inflation tops expectations, puts the squeeze on housing industry

One bright spot, the group noted, is that durable goods prices only rose 0.1% over the month despite price increases for both new and used cars, which were up by 1% and 1.8% in May, respectively.

“Still, there’s little evidence in this report that underlying inflationary pressures are easing, and we expect that it will cement a 50-basis point hike from the Fed next week and increases the possibility of a lengthier or more aggressive monetary policy tightening thereafter,” the ESR group said.

In terms of growth, Fannie Mae said it will upgrade its near-term GDP expectation based on stronger than expected net exports. However, this upgrade will be partially offset by a downgrade to the group’s near-term forecast for business fixed investment

“Further, higher energy prices will weigh on our growth forecast, and we are growing increasingly concerned about signs of a stressed consumer weighing on medium- to long-term consumption growth, as revolving credit exceeded its pre-pandemic level. As a ratio of aggregate incomes, total debt levels remain below the pre-COVID peak, pointing to further room for consumers to turn to more debt to drive consumption, but the current pace of growth in debt levels is not sustainable.”