Inflation Up, Rate Cuts on Hold: What This Means for Your Wallet

Although the Federal Reserve would always have to fight inflation, the most recent statistics on the consumer price index shows exactly how difficult that battle is. The result of that dispute will have a significant impact on your money in the coming months.

March's 3.5% annual increase in U.S. prices over the previous year was hotter than predicted by experts and marks the third consecutive month that inflation has increased, according to new labor statistics. According to the government, gasoline costs and rent accounted for more than half of the monthly hike on Wednesday.

Overall, the Federal Reserve's continuous efforts to control inflation are far from done. Due to this, investors and consumers are now speculating as to whether the central bank, which was previously anticipated by most to lower its benchmark interest rate in June, may postpone this date by several months or maybe until 2025.

Fed Chairman Jerome Powell has emphasized that officials are keeping a careful eye on inflation statistics to evaluate how well they are doing at gradually returning it to the 2% annual pace that it was at before the pandemic-related price spike. He has cautioned against making the hasty decision to lower the federal funds rate as it might trigger more inflationary pressures.

In response to similar worries, a different Federal Reserve member stated this week that the bank may decide not to lower interest rates in 2024 "if we continue to see inflation moving sideways."

How Come Inflation is Slowly Rising?

Rent and gas costs were the two primary causes of March's higher-than-expected inflation. The AAA noted that rising demand in the United States contributes to rising gas prices at the pump. The current national average of $3.62 per gallon is almost 6.6% more than it was one month ago.

Rising geopolitical tensions in Russia and the Middle East are another factor driving up gas costs; earlier this month, Brent oil surpassed $90 a barrel, while the U.S. benchmark topped $86.

Because there aren't enough homes in the country, rents are still high. A few other products, such as auto insurance, which increased by an astounding 22.2% from the previous year, also played a part in the acceleration. Because of severe weather and the increased cost of new cars, insurers have started raising premiums to cover their growing costs.

Why May That Affect the Fed's Potential Rate-Cutting Decision?

The Fed's most potent tool against inflation is a rate increase. This is due to the fact that as borrowing becomes more expensive, both individuals and companies tend to cut down on spending. This essentially reduces demand for goods and services, which can help curb inflation.

However, many believe the Fed has less justification for lowering rates in the near future because inflation has so far refused to decline by 2024.

When Will the Fed Cut Rates in 2024?

Before Wednesday's inflation news, the majority of experts had scheduled the Fed's June 12 meeting as the most likely date for its rate decrease in four years. Economists also anticipated further cutbacks for the remainder of 2024.

However, those experts readjust their projections considering the most recent inflation data. Ryan Sweet, chief U.S. economist at Oxford Economics, wrote in a research note on Wednesday that if the Fed doesn't cut in June, policymakers are unlikely to lower rates until September since there isn't much economic data provided between their June and July meetings that may change their minds.