Connect with us

Finance

Fed holds interest rates higher for even longer as inflation remains high

Published

on

DO NOT USE ON FNC/FBN DIGITAL EDITORIAL. ONLY FOR CREDIBLE CONTENT

The Federal Reserve won’t lower interest rates until its certain inflation will meet 2% target rate. (iStock)

The Federal Reserve said that a lack of progress in bringing inflation down over the last few months is why it is holding interest rates where they are for now.

On Wednesday, the central bank announced it would maintain the federal funds rate range at 5.25% to 5.5%, where rates have held steady since July. Fed officials have said in past meetings that they anticipated rate cuts for 2024 but need more confidence that inflation is heading toward the 2% target rate. Federal Reserve Chair Jerome Powell reiterated this sentiment on Wednesday when speaking with reporters and said it would likely take longer for the central bank to gain this confidence.

“Our restrictive stance of monetary policy has been putting downward pressure on economic activity and inflation, and the risks to achieving our employment and inflation goals have moved toward better balance over the past year,” Powell said.  “However, in recent months, inflation has shown a lack of further progress toward our 2% objective, and we remain highly attentive to inflation risks.”

The inflation data registered this year has been higher than the Fed expected. The latest reading of the personal consumption expenditures (PCE) price index, excluding food and energy prices – a key metric the Federal Reserve tracks to measure inflation – increased by 3.7% after rising to 2% in the fourth quarter, raising concerns that inflation may be headed in the wrong direction and could spark another rate increase.   

On an annual basis, prices rose 3.5% in March, more than the 3.2% growth last month and above the 3.4% growth economists had expected, according to the Consumer Price Index (CPI) released by the Bureau of Labor Statistics (BLS).

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.

SOCIAL SECURITY: COLA INCREASING BUT MEDICARE COSTS RISING TOO IN 2024

Stagflation risk inflated

While inflation ticked up, U.S. gross domestic product (GDP) dropped faster than expected in the first quarter, at an annual rate of 1.6% for the first quarter after rising 3.4% in the fourth quarter, according to the Bureau of Economic Analysis (BEA).  Those two factors have sparked concerns about the risk of stagflation.

However, Powell told reporters that those concerns are misguided and said that economic growth remains solid and the PCE, the Fed’s preferred inflation gauge, is under 3%. Powell also noted that it was unlikely that the Fed would raise interest rates again at its next meeting. 

“I was around for stagflation. It was 10% unemployment. It was high single-digit inflation and very slow growth,” Powell said, referencing the stagflation in the 1970s, which was triggered by a large spike in oil prices.

If you’re struggling in the current economy, you could consider paying off high-interest debt with a personal loan at a lower rate. You can visit Credible to get your personalized interest rate without affecting your credit score. 

MILLENNIALS ARE DESPERATE TO BUY A HOME, MOST WILLING TO PAY A MORTGAGE RATE ABOVE 7%: SURVEY

How higher interest rates impact your wallet

A higher-for-longer policy stance means consumers must brace for a continued high borrowing costs environment. Relief isn’t likely to come until later in 2024, according to Michele Raneri, TransUnion vice president of U.S. research and consulting.

“As long as interest rates remain relatively high, it’s vital that consumers continue to use credit smartly, especially when it comes to higher-interest products such as credit cards,” Raneri said. “It’s best to only use these cards to the extent there is confidence they can be paid off relatively soon, as interest can pile on quickly, particularly at the higher rates of today. In addition, consumers should consider exploring lower interest products to help consolidate their higher interest debt and lower their monthly payments.”

Mortgage rates have ticked above 7% in recent weeks and that, combined with high home prices, has rendered housing unaffordable for many. Borrowing costs will not likely ease until the Fed dials back interest rates. And the same is true for car financing. The average borrowing cost for new vehicles was 7.1% in the first quarter, while used-vehicle APRs rose to 11.7% in the fourth quarter, according to a recent Edmunds report.

“The Fed is signaling with today’s announcement that there isn’t enough confidence that inflation will continue to drop toward the 2% target,” CoreLogic Chief Economist Selma Hepp said. “We will continue to observe interest trends, but we don’t expect a meaningful dip in mortgage rates for the remainder of the year. What is promising, however, is that some markets are showing an increase in inventory, especially on the lower end of home prices. That is the light at the end of the tunnel for the housing market right now.” 

If you looking to buy a house in today’s economy, comparing multiple lenders can ensure you are getting the best interest rate. Visit Credible to find your personalized mortgage rate in minutes from multiple lenders at once.

THIS IS THE #1 CITY FOR FIRST-TIME HOMEBUYERS, AND OTHER HOT US HOUSING MARKETS

Have a finance-related question, but don’t know who to ask? Email The Credible Money Expert at moneyexpert@credible.com and your question might be answered by Credible in our Money Expert column.

Continue Reading

Finance

China retail sales, industrial output, fixed asset investment in May

Published

on

Huge waiting lines are seen in front of jewelry retailer stores at Yu Garden in Shanghai, China, on May 17, 2025, as the city offers consumption vouchers to stimulate consumer spending.

Nurphoto | Nurphoto | Getty Images

China’s retail sales in May grew at their fastest rate since late 2023, data from National Bureau of Statistics showed Monday, in part helped by Labor Day and Dragon Boat holidays.

Retail sales last month jumped 6.4% from a year earlier, sharply beating analysts’ estimates for a 5% growth in a Reuters poll and rising from the 5.1% growth in the previous month.

Growth in industrial output slowed to 5.8% year on year in May from 6.1% in the prior month. The latest reading came in slightly weaker than analysts’ expectations for a 5.9% rise.

Fixed-asset investment, reported on a year-to-date basis, expanded 3.7% as of May from a year earlier, undershooting Reuters’ forecast for a 3.9% growth and slowing from a 4% growth in the first four months.

The urban survey-based unemployment rate in May came in at 5.0%, easing from 5.1% in April to the lowest level since November last year.

A tariff deal reached by Beijing and Washington in mid-May gave temporary relief to the country’s exports, prompting some businesses to frontload shipment while doubling down on alternative markets. Both sides struck a 90-day truce to roll back most of the triple-digit levies added on each other’s goods in early April.

Commerce Secretary Howard Lutnick told CNBC last week that U.S. tariffs on Chinese imports will stay at their current level of 55%.

China’s exports grew less than expected in May, though surging shipments to Southeast Asian nations, European Union countries and Africa helped offset the sharp decline in U.S.-bound goods. China’s exports to the U.S. plunged over 34% from a year ago, their sharpest drop since February 2020.

The past two months’ trade data indicated resilience in China’s exports, according to Goldman Sachs, as they highlighted “the difficulty for bilateral tariffs to meaningfully reduce total Chinese exports.”

Sluggish domestic demand stuck out as a more pressing issue for Chinese policymakers. Consumer prices have seen an year-on-year decline for four consecutive months, slumping 0.1% in May. Deflation in the factory-gate or producer prices has also deepened, falling 3.3% from a year ago.

However, Beijing may feel less urgency in rolling out additional easing steps as exports appear more resilient than expected and the GDP growth is on track to exceed 5% in the first half-year, Goldman said.

This is breaking news. Please check back later for updates.

Continue Reading

Finance

Why aren’t Chinese consumers spending enough

Published

on

Customers look at clothes advertising discounts of 80% or 70% in a supermarket in Hangzhou, Zhejiang province, China, on June 9, 2025.

Cfoto | Future Publishing | Getty Images

BEIJING — China’s consumer spending shows little sign of picking up soon, given uncertainty about future wealth, changing preferences and lack of a social safety net.

It’s been four straight months of declining consumer prices, consumer confidence is hovering near historic lows, and the real estate market is struggling to turn around. Analysts repeatedly point to one main factor: stagnant income.

Disposable income in China has halved its pace of growth since the pandemic hit in 2020, now growing only by an average of 5% a year, Jeremy Stevens, Beijing-based Asia economist at Standard Bank, said in a report Wednesday.

Most jobs aren’t giving much of a raise. Out of 16 sectors, only three — mining, utilities and information technology services — have seen wage growth exceed that of gross domestic product since 2020, he said.

Monthly business surveys for May showed contraction in the labor market across the board, especially as factories navigate U.S. tariffs. The unemployment rate among young people aged 16 to 24 and not in school remained high in April at 15.8%. The official jobless rate in cities has hovered around 5%.

China market rally and Hang Seng bull run are supported by fundamentals and sentiment: CIO

A record high of 64% Chinese households said in the third quarter of 2024 that they would rather save money rather than spend or invest it, according to a quarterly survey by the People’s Bank of China.

While that moderated to 61.4% in the fourth quarter, according to the latest survey released in March, it reflected a trend of more than 60% of respondents preferring to save that’s been recorded since late 2023.

And for the respondents who planned to increase spending, education was the top category, followed by health care and tourism, according to the PBOC’s fourth-quarter survey released in March.

More than half of respondents viewed the job market as becoming more difficult or hard to tell.

People in China have been culturally inclined to save, especially since limited insurance coverage means individuals must often bear most of the cost of a hospital treatment, higher education and retirement. The real estate slump of the last few years has also weighed on spending since property accounts for most of household wealth in China.

One way to make people more willing to spend is to more than double pension payouts, by increasing the share of state assets paid to the Ministry of Finance, Luo Zhiheng, chief economist at Yuekai Securities, said in a note.

He added that increasing public holidays and offering services sector consumption vouchers could also help.

In the last few weeks, Chinese authorities have stepped up plans to further support employment and improve social welfare. But policymakers have avoided the mass cash handouts that the U.S. and Hong Kong gave residents to stimulate spending after the pandemic.

Coming out of the pandemic, analysts cautioned that retail sales in China would recover very slowly as major uncertainties for consumers remained unresolved.

In the decade before the pandemic, “Chinese consumers were willing and able to buy any innovation, even innovations that were not that really innovations,” said Bruno Lannes, Shanghai-based senior partner with Bain & Company’s consumer products and retail practices.

“In today’s world they are more rational. They know what they want,” he said on a webinar Thursday.

China is scheduled to report retail sales for May on Monday. Analysts polled by Reuters predict a slowdown to 4.9% year-on-year growth, down from 5.1% in April.

A shift out of big cities

Another factor behind negative CPI reads is that Chinese consumers are turning to lower-priced products, either partly benefiting from the overproduction of relatively high-quality goods, or moving away from big cities to places where the cost of living is lower.

Shanghai lost 72,000 permanent residents last year, while Beijing saw a 26,000 drop, Worldpanel and Bain & Company pointed out in a report Thursday. The two cities are typically categorized as “tier 1” cities in China.

As a result of the population shift, smaller cities categorized as “tier 3” and “tier 4” experienced far higher growth in the volume and value of daily necessities sold last year — helping offset a decline in the tier 1 cities, the report said. The study covered packaged food, beverages, personal care and home care.

It found that while the overall volume of such goods sold in China rose by 4.4% last year, average selling prices fell by 3.4%, as consumers preferred lower-priced products and businesses increased promotions.

The trend is even influencing flower sales.

The Kunming International Flora Auction Trading Center in Yunnan province, Asia’s largest flower market, said in May that more demand is coming from less affluent lower-tier cities, resulting in higher volumes but lower average selling prices.

Business has quieted down after the busy May holiday season, Li Shenghuan, a flower seller near the trading center, said Friday. She said flower prices have come down slightly, partly because more people have been growing flowers. She expects demand to pick up around the National Day holiday in early October.

For a sense of the disparity, rural per capita disposable income has been less than half that of cities for years, according to official data. Per capita disposable income in urban areas last year was 54,188 yuan ($7,553). That’s far less than the $64,474 reported for the U.S. as of December.

Weekly analysis and insights from Asia’s largest economy in your inbox
Subscribe now

Standard Bank’s Stevens pointed out that the ratio of consumption to income in rural areas has “substantially increased” and surpassed pre-pandemic levels, while that of urban households has declined. But he noted that lower-income households don’t have the scale of wealth that higher-income groups do in order to meaningfully increase consumption in the near term.

The top 20% accounts for half of total income and consumption in China, and 60% of total savings, he said. “Policy support for low-income groups, while well-meaning, is insufficient without structural wage reform.”

In addition, China’s “common prosperity” rhetoric “has introduced institutional realignments and policy shifts that, while well-intentioned, have added to the uncertainty,” Stevens said, noting the changes have “yet to fully find a new equilibrium.”

Continue Reading

Finance

New ETF gives investor chance to act like a private equity giant

Published

on

VanEck moves first to target alternative asset managers themselves

The S&P 500 is less than 3% from an all-time high. Six of its 11 sectors are within 5% of an all-time high. But even as the U.S. stock market index proves its resilience during a volatile stretch for investors, more money from within portfolios is expected to shift in to privately traded companies.

Jan Van Eck, CEO of ETF and mutual fund manager VanEck, says the trend of companies staying private for longer rather than seeking an initial public offering is here to stay and it offers new opportunities.

High-profile examples include Elon Musk’s SpaceX, Sam Altman’s OpenAI and fintech Stripe.

According to Van Eck, allocations to private assets will jump from a current average portfolio holding level of approximately 2% to 10% in the years ahead.

Some ETFs have begun to invest small portions of their assets in privately held company shares, including SpaceX, such as the ERShares Private-Public Crossover ETF (XOVR). VanEck has launched an ETF tackling the private opportunity in a different way: taking big positions in the publicly traded shares of the investment giants, including private equity firms and other alternative asset managers, that own many private companies.

The VanEck Alternative Asset Manager ETF (GPZ), which launched this month, has a portfolio holdings list that includes Brookfield, Blackstone, KKR, Brookfield Asset Management and Apollo, which combined make up almost 50% of the fund. TPG, Ares and Carlyle are also big positions, in the 5% range each.

The new ETF extends an existing focus on private markets for VanEck. For over a decade, it has offered investors access to private credit, through the VanEck BDC Income ETF (BIZD), which invests in the business development companies that lend to small- and mid-sized private companies. That ETF has a high level of exposure to Ares, Blue Owl, Blackstone, Main Street and Golub Capital, which make up about half of the fund. It pays a hefty dividend of 11%. 

Stock Chart IconStock chart icon

hide content

Investing private through a publicly traded ETF

“You have to believe this is a secular trend and growth will be higher than that for normal money managers, including ETF and mutual fund managers,” said Van Eck.

He cautions, however, there is more volatility in these funds compared to the public equity market overall.  “You have to size it appropriately,” he added.

Continue Reading

Trending