Finance

December Inflation clouds Fed’s outlook on interest rate cuts

Published

3 months ago

January 15, 2025

Business Finance News

Gas prices majorly contributed to higher inflation in December. (iStock)

Annual inflation increased to 2.9% in December, rising modestly above the 2.7% annual inflation rate of the previous month, according to the Consumer Price Index (CPI) released by the Bureau of Labor Statistics (BLS).

Inflation increased 0.4% monthly in December, slightly exceeding expectations. Core CPI, which excludes food and energy, rose by 0.2% in December, coming in below estimates after four consecutive months of 0.3% increases. This brought the year-over-year rate to 3.2%.

The cost of energy rose 2.6% and was the most significant contributor to the monthly increase in December, accounting for nearly 40% of the monthly increase in all items. Gas was up 4.4% over the month. Food prices continued to rise, increasing 0.3% last month after a 0.4% surge in November.

“December’s CPI report brings a mix of news, including a glimmer of optimism,” First American Senior Economist Sam Williamson said in a statement. “While Headline CPI increased and exceeded expectations, the monthly increase in the less volatile and more closely watched Core CPI slowed and was below expectations.

“This downside surprise in Core CPI is encouraging, but one month does not make a trend,” Williamson continued. “The Federal Reserve will likely need to see sustained progress before considering any rate cuts.”

The Federal Reserve cut interest rates by a quarter of a percentage point in December, dropping rates from 4.25% to 4.5%, but the minutes from the Federal Open Market Committee meeting showed that there is growing concern about higher inflation and a clear division among the Fed’s members on whether to continue dialing rates back. Some expressed support for keeping the central bank’s key rate unchanged, and most officials said the decision to cut rates was a close call, the minutes said. The Fed’s next meeting will be on Jan. 28 and 29.

“The December CPI numbers indicate that inflation is not cooling at the rate that satisfies the Fed’s target,” Voxtur Analytics CEO Ryan Marshall said. “As a result, those who were optimistic that the Fed would cut interest rates more in 2025 are now realigning forecasts to expect fewer rate cuts this year.”

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Shelter costs remain elevated

Shelter costs rose by 0.3% monthly, at the same pace as the previous month, which helped bring the annual inflation rate down to 4.6% from 4.7% last month, according to Realtor.com Chief Economist Danielle Hale.

Despite the slight progress, shelter costs remain above their pre-pandemic range, which averages 3.3%, according to Hale. Elevated costs are likely to stall further rate cuts, which impacts the level of longer-term rates like mortgage rates, which remain just below 7%.

“Right now, the market does not place high odds on a cut before June,” Hale said in a statement. “The labor market ended 2024 with a bang, as hiring ticked up and the unemployment rate slipped back to 4.1% in December. With the full-employment half of the Fed’s dual mandate on more solid footing than seemed the case three to six months ago, the Fed is likely to be patient, especially if inflation continues to hover just above target.”

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The housing outlook is shaky

Elevated mortgage rates will further stall the housing market despite willing buyers, according to Hale. Homeownership remains a central goal for roughly 75% of Americans surveyed by Realtor.com, but affordability remains a top concern for many.

“Existing home sales improved in recent months following fall’s lower mortgage rates, but as rates have climbed back up, our expectations for home sales have been diminished,” Hale said.

What’s ahead for housing is more of the same in terms of mortgage rates, and home prices are expected to continue rising. One bright spot is that the incoming President Donald Trump administration could spur more substantial economic growth and, therefore, higher incomes, giving Americans more buying power. Moreover, lower household tax rates are anticipated to boost disposable household income even if incomes don’t rise, according to the Realtor.com Housing Forecast.

“For 2025, the Realtor.com Housing Forecast anticipates a modest decline in mortgage rates to power a modest uptick in home sales,” Hale said. “Every drop in the inflation rate will help bring that expectation closer to reality.”

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Finance

More Americans buy groceries with buy now, pay later loans

Published

3 hours ago

April 26, 2025

Business Finance News

People shop for produce at a Walmart in Rosemead, California, on April 11, 2025.

Frederic J. Brown | Afp | Getty Images

A growing number of Americans are using buy now, pay later loans to buy groceries, and more people are paying those bills late, according to new Lending Tree data released Friday.

The figures are the latest indicator that some consumers are cracking under the pressure of an uncertain economy and are having trouble affording essentials such as groceries as they contend with persistent inflation, high interest rates and concerns around tariffs.

In a survey conducted April 2-3 of 2,000 U.S. consumers ages 18 to 79, around half reported having used buy now, pay later services. Of those consumers, 25% of respondents said they were using BNPL loans to buy groceries, up from 14% in 2024 and 21% in 2023, the firm said.

Meanwhile, 41% of respondents said they made a late payment on a BNPL loan in the past year, up from 34% in the year prior, the survey found.

Lending Tree’s chief consumer finance analyst, Matt Schulz, said that of those respondents who said they paid a BNPL bill late, most said it was by no more than a week or so.

“A lot of people are struggling and looking for ways to extend their budget,” Schulz said. “Inflation is still a problem. Interest rates are still really high. There’s a lot of uncertainty around tariffs and other economic issues, and it’s all going to add up to a lot of people looking for ways to extend their budget however they can.”

“For an awful lot of people, that’s going to mean leaning on buy now, pay later loans, for better or for worse,” he said.

He stopped short of calling the results a recession indicator but said conditions are expected to decline further before they get better.

“I do think it’s going to get worse, at least in the short term,” said Schulz. “I don’t know that there’s a whole lot of reason to expect these numbers to get better in the near term.”

The loans, which allow consumers to split up purchases into several smaller payments, are a popular alternative to credit cards because they often don’t charge interest. But consumers can see high fees if they pay late, and they can run into problems if they stack up multiple loans. In Lending Tree’s survey, 60% of BNPL users said they’ve had multiple loans at once, with nearly a fourth saying they have held three or more at once.

“It’s just really important for people to be cautious when they use these things, because even though they can be a really good interest-free tool to help you kind of make it from one paycheck to the next, there’s also a lot of risk in mismanaging it,” said Schulz. “So people should tread lightly.”

Lending Tree’s findings come after Billboard revealed that about 60% of general admission Coachella attendees funded their concert tickets with buy now, pay later loans, sparking a debate on the state of the economy and how consumers are using debt to keep up their lifestyles. A recent announcement from DoorDash that it would begin accepting BNPL financing from Klarna for food deliveries led to widespread mockery and jokes that Americans were struggling so much that they were now being forced to finance cheeseburgers and burritos.

Over the last few years, consumers have held up relatively well, even in the face of persistent inflation and high interest rates, because the job market was strong and wage growth had kept up with inflation — at least for some workers.

Earlier this year, however, large companies including Walmart and Delta Airlines began warning that the dynamic had begun to shift and they were seeing cracks in demand, which was leading to worse-than-expected sales forecasts.