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focus
- Federal Reserve Chairman Jerome Powell said in testimony before Congress today that the U.S. economy has made “considerable progress” in achieving the Federal Reserve’s 2% inflation target over the past two years.
- In addition to cooling inflation, a weakening labor market may also affect the Fed’s decision to cut interest rates.
- The latest consumer price index inflation data will be released on Thursday but is unlikely to affect the Federal Reserve’s vote on interest rates at its month-end meeting.
Federal Reserve Chairman Jerome Powell said in testimony before Congress today that slowing inflation and a “significant cooling” in the labor market are strengthening the case for cutting interest rates.
“The economy is no longer overheating,” Powell told the Senate Banking Committee in his semiannual address to Congress on monetary policy.
Powell noted that we are seeing “modest” progress in slowing inflation after picking up in the first quarter of 2024. Consumer price index data released by the U.S. Bureau of Labor Statistics showed that U.S. consumer prices were unchanged in May from the previous month. Annual inflation rose 3.3%, slightly lower than April’s annual rate of 3.4%.
Powell said that while overall inflation has “slowed significantly over the past few years,” it remains above the Fed’s 2% target.
Powell’s comments came after the U.S. Bureau of Labor Statistics released employment data last week. Although still at a low level, the unemployment rate edged up again in June to 4.1%. Gradual weakness in the labor market has led some, including the stock market, to expect the Federal Reserve to cut interest rates as soon as September.
Powell said the committee would need to see continued improvement in inflation data in the coming months before making any changes to the federal funds rate. That means even if Thursday’s CPI report shows inflation is cooling again, it’s unlikely to change the Federal Open Market Committee’s vote later this month. The Fed is expected to once again keep interest rates at its target rate of 5.25% to 5.5%, levels it has lasted since July 2023.
That’s why everyone is trying to explain Powell’s Tea and what it means for your money.
How will a rate cut affect you?
The federal funds rate is the interest rate banks charge each other for lending. When interest rates rise, banks tend to also raise interest rates on consumer products such as credit cards and loans, thereby raising borrowing costs. The Federal Reserve is raising interest rates in 2022 and 2023 to curb runaway inflation that has soared since the outbreak.
Even if the Fed votes to lower the federal funds rate in September, it will likely be gradual. Just one rate cut is unlikely to significantly reduce your credit card APR. So if you have high-interest debt, consider implementing a debt payoff strategy or applying for a balance transfer card or debt consolidation loan.
If you’re waiting for interest rates to drop before buying a home, experts suggest you should focus on factors you can control. While much of the U.S. is not a buyer’s market, a slowdown in home sales may provide an opportunity to negotiate a lower price with motivated sellers.
Finally, if you want to save more money, take advantage of higher interest rates with a high-yield savings account or a high-yield certificate of deposit to grow your savings faster.
