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If you’ve been eagerly anticipating an onslaught of interest rate cuts, Federal Reserve Chair Jerome Powell’s latest comments could put a crimp in your plans.
Following the Fed’s quarter-percent rate cut at its November meeting, experts have been less confident about more cuts in the near term amid continued reports about resilient consumer spending and mixed employment reports. Powell’s remarks to business leaders in Dallas this week indicated the Fed isn’t in any rush to mess with a good thing.
“The economy is not sending any signals that we need to be in a hurry to lower rates,” he said, calling the US economy’s recent performance “by far the best of any major economy in the world.”
His comments came a day after the Bureau of Labor Statistics‘ monthly Consumer Price Index report showed that inflation rose by 2.6% annually in October. Although the report aligned with most experts’ expectations, it marked a reversal of the inflation measure’s slow but steady decline since this spring. Housing remains the biggest contributor to rising prices, accounting for half of the increase, as the shelter index rose by 0.4% month over month, according to the BLS report.
The latest inflation news could further dampen hopes that the Federal Reserve will cut interest rates in December. After months of cooling inflation and signs of a softening labor market, the Fed lowered interest rates by a half percent in September and another quarter percent this month. The committee had penciled in another quarter percent rate cut in December, as well as additional cuts in 2025.
But if inflation continues to inch upward, the central bank may decide it needs to leave rates high to avoid a repeat of runaway inflation. Inflation peaked at 9.1% in June 2022 before slowly making its way back down closer to the Fed’s target range of 2%.
The Fed doesn’t directly set interest rates, but when it changes the federal funds rate, banks tend to follow suit. Interest rates affect how much it costs for you to borrow money, including for mortgages and credit cards.
However, higher interest rates can also affect how much you can earn on your savings. That can help those who’re able to put aside even a small amount of money, said Bernadette Joy, personal finance coach and member of the CNET Expert Review Board.
“High-yield savings accounts and CDs are still offering decent returns, so putting away even a little extra could be a smart way to round out the year,” she said.
