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Inflation hits 2.5% in August, keeping the Fed on track to lower interest rates

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Inflation is cooling and the Fed will likely lower interest rates in September. (iStock)

The annual inflation rate in August continued to inch towards 2%, the target inflation rate the Federal Reserve has set, according to the Consumer Price Index (CPI) released by the Bureau of Labor Statistics (BLS).

On an annual basis, prices rose 2.5% in August, the smallest 12-month increase since February 2021. This is a softening from the 2.9% growth in the previous month. On a monthly basis, prices increased 0.2%, the same increase as in July. The core inflation, which excludes more volatile food and energy prices, rose 3.2% and increased 0.3% monthly in August after rising 0.2% the preceding month.

Driving the drop in inflation was a decrease in energy costs over the past year and a marked slowdown in the pace of grocery price hikes. On the other hand, shelter inflation weighed heavily on consumer expenses and was the biggest driver, rising 0.5% in August. On an annual basis, however, shelter inflation rose 5.2%, significantly down from its 8.2% peak in March 2023.

“Today’s data is one of the last major data checkpoints on the road to the Fed’s meeting and decision in September,” Realtor.com Chief Economist Danielle Hale said. “It holds vital clues about the likely size of the Fed’s cut in September, which is widely believed to be a given, at this point. In my view, the continued decline in August inflation solidifies the path for a rate cut in September. The mixed headline and core CPI readings open the door to a lively debate about whether a quarter-point cut or half-point cut will be appropriate.”

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BEST PERSONAL LOANS OF AUGUST 2024

A quarter of half a point cut ahead?

August’s decrease marks several months of consistent decreases since March and bodes well for the narrative that the Federal Reserve may finally be ready to cut interest rates at its meeting next week. However, it is unclear if the rate cut will be as deep as some economists had predicted.

The U.S. Bureau of Labor Statistics recently reported that the U.S. added 818,000 fewer jobs over the last 12 months (through March) than they previously predicted. The unexpectedly weak data on job creation had prompted calls for at least a half-point cut, but cutting rates by 50 basis points now could be viewed as the Fed admitting it waited too long to get started, according to Jim Baird, Plante Moran Financial Advisors chief investment officer. 

“Sticking the landing on rate policy is important to the Fed, but so is controlling the narrative and maintaining the central bank’s credibility,” Baird said. “With that in mind, there’s nothing in the August inflation report that is likely to sway policymakers from the measured quarter-percent cut that they’ve been guiding expectations toward for some time.”

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Housing market correction underway

Mortgage rates have continued to drop amid expectations of rate cuts coming out of upcoming Fed meetings, but first-time home buyers, in particular, continued to face the challenge of high home prices.

A Fed rate cut should further improve borrowing rates for mortgages and housing inventory keeps building, according to a Realtor.com report. The number of homes actively for sale increased by 35.8% in August and now sits at the highest since May 2020. Moreover, the share of affordable homes priced between $200,000 and $350,000 keeps increasing. 

Democratic presidential candidate Kamala Harris has proposed offering up to $25,000 in down payment support to first-time homebuyers.

“Many Southern markets have seen a significant build-up in inventory, taking some pressure off of prices, while popular Midwest and Northeast markets continue to see high demand and price growth,” Realtor.com Senior Economic Research Analyst Hannah Jones said. “The market is particularly tough for first-time home buyers who do not have the advantage of existing home equity to leverage into a home purchase. Presidential candidate Kamala Harris has proposed a plan to assist first-time buyers with a down-payment, which could be highly impactful, and could even cover a whole down payment in some markets.”

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SHOULD YOU BUY A HOUSE IN 2024? HERE’S WHAT YOU NEED TO KNOW

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Buffett denies social media rumors after Trump shares wild claim that investor backs president crashing market

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Berkshire Hathaway responds to 'false reports' on social media

Warren Buffett went on the record Friday to deny social media posts after President Donald Trump shared on Truth Social a fan video that claimed the president is tanking the stock market on purpose with the endorsement of the legendary investor.

Trump on Friday shared an outlandish social media video that defends his recent policy decisions by arguing he is deliberately taking down the market as a strategic play to force lower interest and mortgage rates.

“Trump is crashing the stock market by 20% this month, but he’s doing it on purpose,” alleged the video, which Trump posted on his Truth Social account.

The video’s narrator then falsely states, “And this is why Warren Buffett just said, ‘Trump is making the best economic moves he’s seen in over 50 years.'”

The president shared a link to an X post from the account @AmericaPapaBear, a self-described “Trumper to the end.” The X post itself appears to be a repost of a weeks-old TikTok video from user @wnnsa11. The video has been shared more than 2,000 times on Truth Social and nearly 10,000 times on X.

Buffett, 94, didn’t single out any specific posts, but his conglomerate Berkshire Hathaway outright rejected all comments claimed to be made by him.

“There are reports currently circulating on social media (including Twitter, Facebook and Tik Tok) regarding comments allegedly made by Warren E. Buffett. All such reports are false,” the company said in a statement Friday.

CNBC’s Becky Quick spoke to Buffett Friday about this statement and he said he wanted to knock down misinformation in an age where false rumors can be blasted around instantaneously. Buffett told Quick that he won’t make any commentary related to the markets, the economy or tariffs between now and Berkshire’s annual meeting on May 3.

‘A tax on goods’

While Buffett hasn’t spoken about this week’s imposition of sweeping tariffs from the Trump administration, his view on such things has pretty much always been negative. Just in March, the Berkshire CEO and chairman called tariffs “an act of war, to some degree.”

“Over time, they are a tax on goods. I mean, the tooth fairy doesn’t pay ’em!” Buffett said in the news interview with a laugh. “And then what? You always have to ask that question in economics. You always say, ‘And then what?'”

During Trump’s first term, Buffett opined at length in 2018 and 2019 about the trade conflicts that erupted, warning that the Republican’s aggressive moves could cause negative consequences globally.

“If we actually have a trade war, it will be bad for the whole world … everything intersects in the world,” Buffett said in a CNBC interview in 2019. “A world that adjusts to something very close to free trade … more people will live better than in a world with significant tariffs and shifting tariffs over time.”

Buffett has been in a defensive mode over the past year as he rapidly dumped stocks and raised a record amount of cash exceeding $300 billion. His conglomerate has a big U.S. focus and has large businesses in insurance, railroads, manufacturing, energy and retail.

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Stocks making the biggest moves midday: PLTR, CAT, AAPL JPM

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Powell sees tariffs raising inflation and says Fed will wait before further rate moves

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US Federal Reserve Chair Jerome Powell holds a press conference after the Monetary Policy Committee meeting, at the Federal Reserve in Washington, DC on March 19, 2025. 

Roberto Schmidt | Afp | Getty Images

Federal Reserve Chair Jerome Powell said Friday that he expects President Donald Trump’s tariffs to raise inflation and lower growth, and indicated that the central bank won’t move on interest rates until it gets a clearer picture on the ultimate impacts.

In a speech delivered before business journalists in Arlington, Va., Powell said the Fed faces a “highly uncertain outlook” because of the new reciprocal levies the president announced Wednesday.

Though he said the economy currently looks strong, he stressed the threat that tariffs pose and indicated that the Fed will be focused on keeping inflation in check.

“Our obligation is to keep longer-term inflation expectations well anchored and to make certain that a one-time increase in the price level does not become an ongoing inflation problem,” Powell said in prepared remarks. “We are well positioned to wait for greater clarity before considering any adjustments to our policy stance. It is too soon to say what will be the appropriate path for monetary policy.”

The remarks came shortly after Trump called on Powell to “stop playing politics” and cut interest rates because inflation is down.

There’s been a torrent of selling on Wall Street following the Trump announcement of 10% across-the-board tariffs, along with a menu of reciprocal charges that are much higher for many key trading partners.

Powell noted that the announced tariffs were “significantly larger than expected.”

“The same is likely to be true of the economic effects, which will include higher inflation and slower growth,” he said. “The size and duration of these effects remain uncertain.”

Focused on inflation

While Powell was circumspect about how the Fed will react to the changes, markets are pricing in an aggressive set of interest rate cuts starting in June, with a rising likelihood that the central bank will slice at least a full percentage point off its key borrowing rate by the end of the year, according to CME Group data.

However, the Fed is charged with keeping inflation anchored with full employment.

Powell stressed that meeting the inflation side of its mandate will require keeping inflation expectations in check, something that might not be easy to do with Trump lobbing tariffs at U.S. trading partners, some of whom already have announced retaliatory measures.

A greater focus on inflation also would be likely to deter the Fed from easing policy until it assesses what longer-term impact tariffs will have on prices. Typically, policymakers view tariffs as just a temporary rise in prices and not a fundamental inflation driver, but the broad nature of Trump’s move could change that perspective.

“While tariffs are highly likely to generate at least a temporary rise in inflation, it is also possible that the effects could be more persistent,” Powell said. “Avoiding that outcome would depend on keeping longer-term inflation expectations well anchored, on the size of the effects, and on how long it takes for them to pass through fully to prices.”

Core inflation ran at a 2.8% annual rate in February, part of a general moderating pattern that is nonetheless still well above the Fed’s 2% target.

In spite of the elevated anxiety over tariffs, Powell said the economy for now “is still in a good place,” with a solid labor market. However, he mentioned recent consumer surveys showing rising concerns about inflation and dimming expectations for future growth, pointing out that longer-term inflation expectations are still in line with the Fed’s objectives.

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