The Fed will not lower interest rates until a certain level of inflation reaches its target rate of 2%. (iStock)
The Federal Reserve Board stated: Lack of inflationary developments Interest rates have fallen over the past few months, which is why they’re holding their own at this point.
The central bank announced Wednesday that it would keep the federal funds rate range at 5.25% to 5.5%, where rates have been unchanged since July. Fed officials have said in past meetings that they expect to cut rates in 2024 but need more confidence that inflation is on track to reach their 2% target rate. Federal Reserve Chairman Jerome Powell reiterated this idea on Wednesday. talk to a reporter He said it would take more time for central banks to gain this confidence.
“The restrained stance of our monetary policy has put downward pressure on economic activity and inflation, and the risks to achieving our employment and inflation goals have shifted toward an improved balance over the past year,” Powell said. Stated. “However, inflation has not made further progress towards the 2% target in recent months and we remain very mindful of inflation risks.”
Inflation statistics registered this year exceeded the Fed’s expectations. The latest reading of the personal consumption expenditures (PCE) price index, which excludes food and energy prices, a key indicator for the Federal Reserve to measure inflation, was 3.7% after rising as high as 2% in the fourth quarter. There are growing concerns that inflation could rise. This could be a step in the wrong direction and trigger further rate hikes.
On an annual basis, prices rose 3.5% in March, higher than last month’s 3.2% rise and also above economists’ expectations for 3.4% growth. consumer price index (CPI) Published by the Bureau of Labor Statistics (BLS).
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Stagflation risk increases
US gross domestic product (GDP) fell faster than expected while inflation accelerated. first quarterThe annualized rate rose to 1.6% in the first quarter, after rising 3.4% in the fourth quarter, according to the Bureau of Economic Analysis (BEA). These two factors have raised concerns about the risk of stagflation.
But Powell told reporters those concerns were misplaced, saying economic growth remained strong and the Fed’s preferred inflation measure, PCE, remained below 3%. Powell also noted that the Fed is unlikely to raise rates again at its next meeting.
“I was prepared for stagflation. Unemployment was 10%. Low-single-digit inflation and It was a very slow growth.”
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Impact of rising interest rates on your wallet
A prolonged policy stance means consumers need to prepare for an environment in which borrowing costs remain high. Relief likely won’t materialize until late 2024, said Michele Ranelli, TransUnion’s vice president of U.S. research and consulting.
“As long as interest rates are relatively high, it is critical that consumers continue to use credit wisely, especially when it comes to high-interest products such as credit cards,” Ranelli said. “Especially with today’s high interest rates, interest can add up quickly, so it’s best to use these cards only to the extent that you’re confident you can pay them off relatively quickly. You should consider looking into products to help you consolidate ” that will give you higher interest rates on your debt and lower monthly payments. ”
Mortgage interest rates have climbed above 7% in recent weeks, which, combined with soaring home prices, has put housing out of reach for many people. Borrowing costs will not ease until the Fed lowers interest rates. The same goes for car loans. According to a recent Edmunds study, the average borrowing cost for a new car in the first quarter was 7.1%, but the APR for a used car rose to 11.7% in the fourth quarter. report.
“The Fed’s announcement today indicates that it does not have sufficient confidence that inflation will continue to decline toward its 2% target,” said Thelma Hepp, chief economist at CoreLogic. . “While we will continue to monitor interest rate trends, we do not expect mortgage rates to decline significantly for the remainder of this year.However, what we can hope for is that inventory will remain strong in some markets, particularly at lower price points. That’s the light at the end of the tunnel for today’s housing market. ”
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