Personal Finance

Inflation: March CPI up as Federal Reserve weighs interest rate cuts

Published

10 months ago

April 10, 2024

Inflation ticked up again in March compared with the year before — in yet another sign that the economy doesn’t need high interest rates to come down any time soon.

Fresh data from the Bureau of Labor Statistics on Wednesday showed prices rose 3.5 percent from March 2023 to March 2024. That’s up slightly from the 3.2 percent annual figure notched in February. Prices also rose 0.4 percent between February and March.

The result: The Federal Reserve is very unlikely to cut interest rates in the next few months. Officials have been looking for a bit more assurance that inflation is steadily falling before deciding it’s time to trim borrowing costs. But since the start of the year, the data has brought unwanted surprises, with economists and the markets now expecting no cuts until later in 2024.

The Fed “is nowhere near where they’re going to need to be,” said Douglas Holtz-Eakin, president of the American Action Forum and former director of the Congressional Budget Office. “March would not give anyone any confidence.”

All of the major stock indexes closed in the red, with the Dow Jones Industrial Average falling more than 1 percent.

A delayed timeline for rate cuts could also collide with November’s presidential election. The Fed works hard to distance itself from politics, but central bankers are bound by their calendar. Wednesday’s report dashed expectations for an initial cut in June. And that leaves future moves to the Fed’s meetings in July, September and the first week of November — the height of election season, when Republicans and Democrats are racing to leverage the economy in their appeals to voters.

Speaking to reporters, President Biden touted his administration’s moves to lower costs for Americans, and he stood by earlier predictions that there would be a rate cut by the end of the year.

But “this may delay it a month or so,” Biden said. “I’m not sure of that. We don’t know what the Fed is going to do for certain.”

The main drivers of inflation — housing and energy costs — told a familiar story in March, and together made up more than half of the month-to-month increase for all of the items that go into the consumer price index. Rent costs rose 0.4 percent in March, a slight improvement from February. But they are still up 5.7 percent compared with a year ago. The energy index rose 1.1 percent in March, down from the 2.3 percent notched in February, but still up 2.1 percent over last year. Costs for car insurance also contributed to the hot report.

The Fed entered the year bolstered by six months of encouraging data — and notable progress since inflation soared to 40-year highs in the middle of 2022. For much of last year, healing supply chains helped ease prices for all kinds of goods, from couches to electronics and more. Gas prices also cooled off dramatically, after Russia’s 2022 invasion of Ukraine roiled global energy markets. Put together, the progress on goods and energy costs helped bring inflation way down from a peak of 9.1 percent. And going into this year, the hope was the trend would continue.

But prices went in the other direction in January, February and now March, coming in hotter than expected and disrupting the Fed’s remarkable streak of welcome news. Economists say that’s partly because there isn’t much relief coming from goods or energy prices anymore. And in the meantime, a thornier inflation category — stemming from services like hospitality, leisure and health care — hasn’t had a major breakthrough.

Policymakers will splice the report for narrower readings that help them gain a sharper sense of how inflation is pulsing through the economy. For example, a key measure that strips out more volatile categories like food and energy rose 0.4 percent in March, as it did for the two previous months. That won’t offer much comfort to officials in light of the services trend.

Similarly, officials like to compare data month to month — instead of year to year — since the economy can change so quickly. There, too, the Fed saw muted progress, with prices rising at the same rate in March as they did in February.

The central bank has pushed interest rates to their highest level in 23 years to combat inflation, and officials said before this latest report that they expect to cut rates three times this year.

So far, the inflation numbers haven’t signaled any urgency to bring rates back down, though.

Still, Lindsay Owens, executive director of the Groundwork Collaborative, a left-leaning think tank, said there’s a disconnect between the parts of the economy that are driving inflation and the parts the Fed is trying to tame through high rates. For example, car insurance claims don’t go down if the Fed keeps rates high, Owens said. Energy costs are often tied to events around the world.

“None of these things are remotely in the realm of things that are impacted through demand destruction,” Owens said. “I think if anything, this was not good news for those of us who want to see rate cuts sooner, but I think that’s unfortunate and misguided.”

At a news conference last month, at the end of the Fed’s March policy meeting, Fed Chair Jerome H. Powell said the task of getting inflation down to normal levels was always going to involve “some bumps.” Meeting minutes released Wednesday also showed that some officials noted that the rise in inflation from the beginning of the year “had been relatively broad based, and therefore should not be discounted as merely statistical aberrations.”

But financial markets are also wary that the uncertainty could interfere with cuts this year. Stocks dropped last week after Minneapolis Fed President Neel Kashkari said that while he has cuts in his forecast, that could change if progress stalls.

“That would make me question whether we needed to do those rate cuts at all,” he said.

Over the past few years, inflation has been driven by different factors. More recently, housing costs have kept the rate high. Plenty of economists argue that the official statistics in the consumer price index are delayed and aren’t accounting for real-time measures that show rents falling in many places. But policymakers are still unsure why the shift hasn’t shown up yet. And the longer the shift takes, the harder it will be to wrestle overall inflation down.

“I bought that argument for the first year,” Holtz-Eakin said. “But at some point, it actually has to change.”

All of these factors pushed the Fed to raise borrowing costs after inflation spiked. That’s meant to slow the economy by making it more expensive to get a mortgage, take out a car loan or grow a business. And while practically every economist expected that all-out effort to tip the economy into a recession, the opposite has happened, with job growth and consumer spending holding strong.

But it hasn’t returned all the way to normal, and Fed officials are quick to caution that victory isn’t guaranteed. The Fed’s target is to get inflation to 2 percent, using its preferred inflation measure. That metric is different from the one released by the Bureau of Labor Statistics on Wednesday, and it clocked in at 2.5 percent in February compared with the year before.

Personal Finance

Trump funding freeze is existential threat: Morehouse College president

Published

11 hours ago

January 30, 2025

Business Finance News

Morehouse College President David Thomas speaks during Morehouse College’s graduation ceremony, before US President Joe Biden delivers his commencement address, in Atlanta, Georgia on May 19, 2024.

Andrew Caballero-Reynolds | Afp | Getty Images

David Thomas, the president of Morehouse College, said his office fielded a surge of calls this week from worried students and their families concerned the Trump Administration’s “federal funding freeze” would directly impact college access.

The sudden scramble was “perhaps only rivaled by what happened in March of 2020 when we realized that the Covid pandemic was truly a threat,” Thomas told CNBC. He became president of Morehouse, one of the country’s top historically Black colleges and universities, or HBCUs, in 2018.

This freeze on federal aid “would create another existential threat as great as the pandemic,” he said.

Thomas’ comments come amid ongoing confusion about how a freeze on federal grants and loans could potentially impact students and schools.

A Jan. 27 memo issued by the Office of Management and Budget, which would affect billions of dollars in aid, said the pause on federal grants and loans “does not include assistance provided directly to individuals.”

Although the memo was later rescinded, the White House said a “federal funding freeze” remains in “full force and effect.” It is currently on hold amid legal challenges.

Thomas, who is also on the Board of Trustees at Yale University, said college leaders across the country have spent the better part of the week focused on “the consequences of this action.” Morehouse immediately initiated a hiring freeze in preparation for a potentially significant financial disruption.

“All of the institutions are still in limbo,” he said.

What college aid may be affected

At Morehouse College, about 40% of the student body relies on Federal Pell Grants, a type of federal aid available to low-income families.

Following the memo’s release, the Education Department announced that the freeze would not affect student loans or Pell Grants.

“The temporary pause does not impact Title I, IDEA, or other formula grants, nor does it apply to Federal Pell Grants and Direct Loans under Title IV [of the Higher Education Act],” Education Department spokesperson Madi Biedermann said in a statement.

In addition to the federal financial aid programs that fall under Title IV, Title I provides financial assistance to school districts with children from low-income families. The Individuals with Disabilities Education Act, or IDEA, provides funding for students with disabilities.

The funding pause “only applies to discretionary grants at the Department of Education,” Biedermann said. “These will be reviewed by Department leadership for alignment with Trump Administration priorities.”

President Trump moves to halt federal grants

But questions remain about other aid for college.

The freeze could affect federal work-study programs and the Federal Supplemental Educational Opportunity Grant, which are provided in bulk to colleges to provide to students, according to Kalman Chany, a financial aid consultant and author of The Princeton Review’s “Paying for College.”

The disruption to federally backed research funding also poses a threat to college programs and staff.

‘Lots of reasons to still be concerned’

“There are lots of reasons to still be concerned,” said Jonathan Fansmith, a senior vice president at the American Council on Education.

“The administration has made it clear the executive orders will have implications for a huge range of existing awards and grants,” he said. “Those have implications for campuses and there is no more clarity in that regard than there was before.”

At Morehouse, “a huge portion of our faculty is supported by grants,” Thomas said. “If we can’t run the college, colleges like ours will probably be forced to drastically shrink themselves or close.”

Morehouse, located in Atlanta and founded in 1867, has more than 2,200 students.

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Personal Finance

What federal employees need to consider when evaluating offer to resign

Published

14 hours ago

January 30, 2025

Business Finance News

A “Do not cross” sign is illuminated at a crosswalk outside of U.S. Capitol building in Washington, US, November 10, 2024.

Hannah Mckay | Reuters

The Trump administration emailed more than 2 million federal workers this week, giving them the option to resign now and get pay and benefits through Sept. 30.

Workers have until Feb. 6 to accept the “deferred resignation” offer.

The payouts come on the heels of President Donald Trump‘s executive order to end DEI programs. On Wednesday, he said federal workers need to return to the office five days a week “or be terminated.”

“We think a very substantial number of people will not show up to work, and therefore our government will get smaller and more efficient,” Trump said at the signing of an immigration detention law.

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Here’s a look at more stories on how to manage, grow and protect your money for the years ahead.

Experts advise federal employees to take their time before accepting the offer. By accepting the resignation, tenured federal employees could lose certain rights they may have.

“If you resign, it’s deemed voluntary,” said Michael L. Vogelsang, Jr., a principal of The Employment Law Group, P.C. “If you are a permanent, tenured employee in the government and the administration wants you out, laws still exist that federal employees cannot just be fired on a whim.”

Meanwhile, some lawmakers question whether the president can make this offer without Congressional approval.

Sen. Tim Kaine, D-Virginia, said federal employees should not be “fooled” by Trump’s proposal.

“If you accept that offer and resign, he’ll stiff you,” Kaine said. “He doesn’t have any authority to do this.”

The Voluntary Separation Incentive Payment Authority gives federal agencies the authority to offer buyout incentives for some employees to resign or retire, but it is capped at $25,000.

Asked for more detail on the payouts, including what authority the president has to offer to pay through September 30, the White House referred back to its statement given on Tuesday.

“If they don’t want to work in the office and contribute to making America great again, then they are free to choose a different line of work and the Trump Administration will provide a very generous payout of eight months,” White House press secretary Karoline Leavitt said in a statement.

There is already uncertainty around current funding for the federal government. It’s operating under a short-term continuing resolution passed in December. Unless Congress acts, the federal government could shut down on March 14.

Unlike with corporate buyouts, federal employees who received this offer can’t appeal for a better deal, experts say.

“Usually with buyouts, I think of more severance, and usually it’s sort of some kind of negotiation. This isn’t really negotiation. It’s sort of a unilateral offer,” Vogelsang said.

Still, some of the factors to consider for weighing the government’s deferred resignation offer are similar to what one would weigh in a corporate buyout, experts say:

Consider how much your position is at risk

For federal employees who aren’t permanent, Vogelsang says they should consider how much their position is at risk and if their skills make it likely they’ll be able to find another job.

“I think there’s enough executive orders out there that people in DEI, probationary employees, IRS employees, environmental employees, can probably read between the lines that their positions may be at risk moving forward,” he said.

Research job alternatives

Career experts advise not waiting to begin the job search.

“Start thinking about your search now, because it’s going to be longer than you think, especially with people flooding the market,” said Caroline Ceniza-Levine, a career coach and founder of Dream Career Club.

Prepare for a job search by updating your LinkedIn profile, identifying your accomplishments and reflecting on professional achievements so you can explain them clearly and concisely. “You don’t get every job that you apply for, and that can be a very frustrating and emotionally draining process,” said Ron Seifert, senior client partner at the staffing firm Korn Ferry.

Consider the work culture if you stay

Think about the culture and career implications of rejecting the offer. A question to ask yourself is, “If I’m still here after this is done, what will this place feel like?” Seifert said. “Is this a place where I have opportunity?”

“I would caution people against making decisions when they’re in the panic zone,” said Connie Whittaker Dunlop, principal of Monarch Consulting Group. “There are a fair number of unknowns, but if you can kind of ground yourself in what you know, what you value, and then make that, make a decision from that space, I think, people will be better served.”

Personal Finance

These child tax credit mistakes can halt your refund, experts say

Published

15 hours ago

January 30, 2025

Business Finance News

Millions of families claim the child tax credit every year — and filing mistakes can delay the processing of your return and receipt of your refund, according to tax experts.

For 2024 returns, the child tax credit is worth up to $2,000 per kid under age 17, and decreases once adjusted gross income exceeds $200,000 for single taxpayers or $400,000 for married couples filing jointly.

The refundable portion, known as the additional child tax credit, or ACTC, is up to $1,700. Filers can claim the ACTC even without taxes owed, which often benefits lower earners.

However, a lower-income family who doesn’t know how to claim the credit “misses out on thousands of dollars,” National Taxpayer Advocate Erin Collins wrote in her annual report to Congress released in January.

More than 18 million filers claimed the additional child tax credit in 2022, according to the latest IRS estimates.

By law, the IRS can’t issue ACTC refunds before mid-February. But the Where’s My Refund portal should have status updates by Feb. 22 for most early filers, according to the IRS.

Here’s how to avoid common child tax credit mistakes that could further delay your refund.

Know if you have a ‘qualifying child’

One child tax credit mistake is not knowing eligibility.

The rules can be “very confusing,” according to Tom O’Saben, an enrolled agent and director of tax content and government relations at the National Association of Tax Professionals.

To claim the child tax credit or ACTC, you must have a “qualifying child,” according to the IRS. The qualifying child guidelines include:

Age: 17 years old at the end of the tax year
Relationship: Your son, daughter, stepchild, eligible foster child, brother, sister, stepbrother, stepsister, half-brother, half-sister or a descendant of these
Dependent status: Dependent on your tax return
Filing status: Child is not filing jointly
Residency: Lived with you for more than half the year
Support: Didn’t pay for more than half of their living expenses
Citizenship: U.S. citizen, U.S. national or a U.S. resident alien
Social Security number: Valid Social Security number by tax due date (including extensions)

You may avoid some eligibility errors by filing via tax software or using a preparer versus filing a paper return on your own, O’Saben said. Tax software typically includes credit eligibility, which can minimize errors.

Missing Social Security number

Typically, parents apply for a Social Security number in the hospital when completing their baby’s birth certificate. But it can take one to six weeks from application to receive that number, according to the agency, which can create time pressure for families with a new addition around tax season.

Filing a tax return and claiming the child tax credit before receiving the Social Security number is a mistake, O’Saben said.

“I have seen [the child tax credit] denied for people who have filed before they got the Social Security number for a dependent,” he said. “And there’s no going back.”

If you don’t have the number before the tax deadline, you should request an extension, which gives you six months more to file your return, O’Saben explained.

However, you still must pay taxes owed by the original deadline.