Finance
Higher rates to linger, Fed may make cuts in September
Market expectations are calling for two interest rate cuts before the end of the year. (iStock)
The Federal Reserve announced plans on Wednesday to keep the federal funds rate range at 5.25% to 5.5%, where rates have held steady since last July.
Fed Chair Jerome Powell told reporters that the central bank has gained greater confidence that inflation is moving towards its 2% target rate, indicating that rates were not lowered this time but could soon be. Market expectations are forecasting a 25 basis point rate cut by the central bank’s September meeting. On Wednesday, the Mortgage Bankers Association said they anticipate two rate cuts this year, with the expectation that inflation will continue to moderate.
“The Fed is walking a tightrope regarding the nation’s economy as it seeks to balance the risks of a slowing labor market while ensuring continued disinflation,” CoreLogic Chief Economist Dr. Selma Hepp. “At this point, the odds of soft-landing keep growing, but there will not be any actions until their next meeting in September. Lower mortgage rates in recent weeks suggest the mortgage markets are also anticipating a rate cut, which should boost buyer demand at the end of the year.”
Homebuyers can find competitive mortgage rates by shopping around and comparing options. You can visit an online marketplace like Credible to compare rates with multiple lenders at once.
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Rate reduction could spur borrowing
Consumers could finally start to see some relief with the possibility of two rate reductions for 2024 still on the table, according to Michele Raneri, vice president and head of U.S. research and consulting at TransUnion.
Lower rates will likely grow consumer demand for credit for large purchases such as homes and autos. Mortgage rates have already started to drop as the likelihood of interest rate cuts heats up and early indicators suggest that consumers are becoming more interested in new mortgages, according to Raneri.
“Consumers continue to have demand for credit, although when it comes to extending new credit, lenders have begun pivoting more to those consumers in higher credit risk tiers as a way of mitigating risk,” Raneri said. “It remains to be seen if a reduction in interest rates allows for credit to once again be more accessible for riskier potential borrowers. “
Using a personal loan to pay off high-interest debt at a lower rate could help you reduce your expenses and put money back in your wallet. Visit Credible to find your personalized interest rate today.
U.S. consumer cuts back on economic activity
Most U.S. consumers think interest rates are too high and have had to cut back on spending as a result, according to a recent Morning Consult survey. Over half (68%) of respondents said rates were to say it’s affected their household finances. As a result, 75% have cut back on non-essential spending and 63% have reduced their spending on essentials.
Moreover, even as the Fed has signaled that it plans to do at least one rate cut this year, 34% of respondents believe that interest rates will be higher at this point next year (34%) than lower (25%).
“The Fed decided today to not reduce interest rates and did not give a clear signal that a decrease would be coming in September,” Morning Consult economist Sofia Baig said. “Continuing to keep rates elevated could be harmful for consumers and the economy as a whole, which is already showing signs of cooling. Furthermore, Morning Consult survey data reveals that a majority of consumers believe rates are too high and are cutting back on their economic activity as a result, a warning sign of downside risks going forward.”
If you’re worried about the state of the economy, you could consider paying down high-interest debt with a personal loan at a lower interest rate. Visit Credible to speak with a personal loan expert and get your questions answered.
HIGH HOMEOWNERS INSURANCE RATES SCARING AWAY FLORIDA HOMEBUYERS, OTHER STATES FACE THE SAME ISSUE
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David Paul Morris/Bloomberg via Getty Images
The annual inflation rate increased slightly in May as an uptick in grocery inflation somewhat offset lower prices at the gasoline pump.
And while inflation was relatively tame, economists said they expect President Trump’s tariff policy to raise consumer prices in coming months — and that there was already some evidence of their impact.
The consumer price index, an inflation barometer, rose 2.4% in the 12 months through May, up from 2.3% in April, the Bureau of Labor Statistics said Wednesday.
‘Calm before the inflation storm’
That increase to the annual inflation rate was largely due to a data quirk called “base effects,” economists said. (Basically, inflation one year prior, in May 2024, was unusually low, making the May 2025 numbers look high by comparison.)
The monthly inflation rate paints a rosier picture and gives a better indicator of underlying trends, economists said: CPI increased 0.1% from April to May, down from 0.2% the prior month, the BLS said.
A consistent monthly rate around 0.2% would generally be adequate to bring inflation down to the Federal Reserve’s long-term target, economists said.
“It was a very good report,” said Mark Zandi, chief economist at Moody’s. “Basically, it says inflation has finally gotten back to the Federal Reserve’s annual inflation target.”
However, tariffs President Trump levied on many countries and products will likely start to show up noticeably into the summer and fall, he said.
“I think it’s the calm before the inflation storm,” Zandi said. “This [report] still reflects the disinflation that began a few years ago and continued on through the month of May.”
Tariff impact on energy prices
That said, tariffs already had some impact on consumer prices in May, economists said.
For one, gasoline prices fell almost 3% from April to May, according to the BLS. They’re down 12% from a year ago, it said.
This is largely the result of falling oil prices, which reflect concerns about a slowdown in global economic growth due to tariffs, said Bernard Yaros, lead U.S. economist at Oxford Economics.
Lower energy prices filter down to the gasoline pump and lower household bills, he said. Lower oil prices also feed through more broadly to reduced costs for transportation, in categories like airline fares, Zandi said.
Airfare fell about 3% from April to May and is down 7% for the year, the BLS said.
Grocery prices were a sticking point in May, though, economists said. Inflation for food at home rose by 0.3% for the month, after having deflated 0.4% the prior month.
Food prices give “a little bit of a queasy feeling,” Zandi said. It’s one of the categories he’s most concerned about, he said.
Other disinflationary factors
Healing supply chains and a weakening of the labor market are factors that have helped rein in U.S. inflation broadly, said Sarah House, a senior economist at Wells Fargo Economics.
Data indicate consumers are continuing to spend money and haven’t shown much reluctance to accept higher prices, House said.
“The consumer hasn’t buckled yet,” she said.
Housing inflation has also moderated, an important element since the category is the largest component of the consumer price index, economists said.
Indeed, monthly inflation for rent and “owners’ equivalent rent” (a rent measure applied to homeowners) have “returned to their pre-pandemic norms,” Stephen Brown, deputy chief North America economist at Capital Economics, wrote in a research note Wednesday.
These trends together signaled “a steady downtrend in inflation” back to the Fed’s long-term target at least by the end of this year or early next year, Oxford Economics’ Yaros said.
Tariff risk ‘stalling out’ disinflation
Tariffs complicate that narrative, economists said.
“The disinflationary trend we’ve been seeing in fits and starts is at risk of stalling out again,” House said.
President Trump has levied a barrage of import duties since his inauguration in January.
Federal data show the effective tariff rate in April was about 6% — and is likely to increase — relative to 2% at end of 2024, House said.
The Yale Budget Lab estimates the average U.S. household would pay about $2,500 more in 2025 due to tariff policy in effect as of June 1.
There were some early signs of tariff impacts in the May CPI report for people “looking through a microscope,” Brown wrote.
For example, major appliance prices jumped 4.3% for the month, and toy prices by 2.2%, he wrote, citing CPI data.
“Unless all retailers are raising prices at the same time, it may trickle not flood into the data,” Elizabeth Renter, senior economist at NerdWallet, wrote Wednesday.
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