In April of 2024, inflation rates in the United States showed a slight decrease for the first time this year, with prices rising by an average of 3.4% in the last 12 months, down from 3.5% in March. The core index, excluding volatile items like food and energy, increased by 0.3%, with housing costs being the largest factor contributing to the monthly increase. Despite this slight decline, inflation remains stubbornly high above the Federal Reserve’s 2% target, making it unlikely for interest rates to be lowered until the second half of the year.
The Federal Reserve remains committed to bringing inflation back to its 2% target, with Chair Jerome Powell emphasizing that the decision to cut interest rates depends on inflation. While there has been some easing in inflation in the past 12 months, the committee requires more evidence that progress is continuing. The Fed had previously anticipated multiple interest rate cuts in 2024, but held the benchmark interest rate steady at 5.25% to 5.5% at its first three meetings. The upcoming meeting scheduled for June 11 to 12 will determine if there will be any changes to interest rates.
High inflation rates have been impacting US households and consumers, with the latest CPI data showing that while inflation rates are lower than the previous year, they are still higher than pre-pandemic levels. The Bureau of Labor Statistics’ CPI tracks data on various products, and the Personal Consumption Expenditures price index provides further insight into inflation trends. The Federal Reserve plays a crucial role in moderating inflation and employment rates by managing the money supply and setting interest rates to maintain average inflation at 2%.
Interest rate hikes by the Federal Reserve can impact economic growth and inflation rates by restricting borrowing and spending. When rates are low, the economy grows, and inflation rises, while high rates slow down the economy and inflation. The Fed had implemented multiple rate hikes following a period of high inflation in 2022, with the hopes of curbing prices and reducing consumer borrowing. As inflation rates and interest rates remain high, consumers are advised to focus on purchasing affordable homes and reducing credit card debt through consolidation or balance transfer options.
For consumers, the impact of inflation and interest rates can be felt through increased costs of daily essentials and higher rates on loans and credit cards. Mortgage and refinance rates continue to be relatively high, with the expectation of a slow decline. Credit card interest rates are likely to remain high, prompting consumers to explore options for reducing interest charges such as debt consolidation or balance transfer cards. Additionally, increased rates can benefit consumers with higher returns on investments in CDs, high-yield savings accounts, and treasury bonds. Taking advantage of these accounts can help individuals reach their financial goals quicker.
