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Key takeaways
- US financial markets have made substantial strides toward achieving the Federal Reserve’s target of 2% inflation over the past couple of years, Chairman Jerome Powell noted during his recent congressional testimony.
- A soft labor market, in addition to slowing inflation, could potentially influence the Federal Reserve’s decision to cut interest rates.
- The latest Shopper Price Index inflation data will be released on Thursday, but it’s unlikely to influence the Federal Reserve’s rate decision at its end-of-month meeting.
US Federal Reserve Chairman Jerome Powell stated on Capitol Hill that a blend of slowing inflation and the labour market’s noticeable slowdown is bolstering the argument for interest rate reductions.
Before the Senate Banking Committee, Federal Reserve Chairman Jerome Powell clarified that “the U.S. financial system is not excessively heated” during his semi-annual testimony on monetary policy.
As the Federal Reserve’s Chairman Jerome Powell remarks, after a slight uptick in the first quarter of 2024, there has been “modest” progress made in curbing inflationary pressures. According to data released by the Bureau of Labor Statistics’ Consumer Price Index, US consumer costs remained steady. Annual inflation eased up by 3.3%, a modest dip from the previous month’s 3.4% increase.
Despite having “notably eased over the past couple of years,” according to Powell, the overall rate of inflation remains stubbornly above the Federal Reserve’s 2% target.
Following Powell’s comments were last week’s employment figures released by the Bureau of Labor Statistics. Unemployment rates crept higher, albeit modestly, reaching 4.1% in June. As the labor market’s pace slows, speculation is growing among both labor and financial circles that the Federal Reserve might consider lowering interest rates by as early as September.
According to Powell, the committee will not consider altering the federal funds rate until there is a consistent and prolonged improvement in inflation data over the next several months. Despite Thursday’s CPI report showing a further slowdown in inflation, it appears unlikely to sway the Federal Open Market Committee’s decision at its meeting later this month. Yields on short-term commercial paper have stabilized within a narrow range of 5.25% to 5.5% since July 2023, a goal rate maintained for an extended period.
Here’s why everyone is trying to read the tea leaves on Powell’s latest comments, and what it really means for your money?
As many as 5 to 7 interest rate cuts by the Federal Reserve could significantly impact your finances and investments.
The federal funds rate represents the interest rate at which banks lend or borrow money from each other on an overnight basis. As interest rates rise, financial institutions may respond by increasing fees on consumer products such as credit cards and loans, further escalating the cost of borrowing money. The Federal Reserve increased interest rates throughout 2022 and 2023 to curb the surge in inflation, which soared in response to the pandemic’s aftermath.
Although the Fed may vote to cut the federal funds rate in September, the move could be more gradual than anticipated. One rate of interest adjustment alone is unlikely to significantly decrease your bank card’s Annual Percentage Rate (APR). When faced with high-interest debt, consider consolidating or refinancing your loans to achieve greater financial stability.
When you’re prepared to absorb the costs associated with buying a home, experts suggest focusing on credit score improvements instead? While it’s not typically a buyer’s market across much of the country, this dynamic can still yield opportunities to negotiate a more attractive price with an eager seller.
For individuals dedicated to building wealth through savvy financial decisions, consider leveraging higher-yielding accounts such as high-interest savings accounts or certificates of deposit (CDs) to accelerate the growth of their nest egg.
