Finance

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

Published

7 months ago

September 13, 2024

Business Finance News

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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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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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Finance

More Americans buy groceries with buy now, pay later loans

Published

4 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.