Personal Finance

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

Published

11 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

Social Security plans to cut about 7,000 workers. That may affect benefits

Published

7 hours ago

March 3, 2025

Business Finance News

The Social Security Administration office in Brownsville, Texas.

Robert Daemmrich Photography Inc | Corbis Historical | Getty Images

The Social Security Administration plans to shed 7,000 employees as the Trump administration looks for ways to cut federal spending.

The agency on Friday confirmed the figure — which will bring its total staff down to 50,000 from 57,000.

Previous reports that the Social Security Administration planned for a 50% reduction to its headcount are “false,” the agency said.

Nevertheless, the aim of 7,000 job cuts has prompted concerns about the agency’s ability to continue to provide services, particularly benefit payments, to tens of millions of older Americans when its staff is already at a 50-year low.

“It’s going to extend the amount of time that it takes for them to have their claim processed,” said Greg Senden, a paralegal analyst who has worked at the Social Security Administration for 27 years.

“It’s going to extend the amount of time that they have to wait to get benefits,” said Senden, who also helps the American Federation of Government Employees oversee Social Security employees in six central states.

Officials at the White House and the Social Security Administration were not available for comment at press time.

The Social Security Administration on Friday said it anticipates “much of” the staff reductions needed to reach its target will come from resignations, retirement and offers for Voluntary Separation Incentive Payments, or VSIP.

More reductions could come from “reduction-in-force actions that could include abolishment of organizations and positions” or reassignments to other positions, the agency said. Federal agencies must submit their reduction-in-force plans by March 13 to the Office of Personnel Management for approval.

Cuts may affect benefit payments, experts say

Former Social Security Administration Commissioner Martin O’Malley last week told CNBC.com that the continuity of benefit payments could be at risk for the first time in the program’s history.

“Ultimately, you’re going to see the system collapse and an interruption of benefits,” O’Malley said. “I believe you will see that within the next 30 to 90 days.”

Other experts say the changes could affect benefits, though it remains to be seen exactly how.

“It’s unclear to me whether the staff cuts are more likely to result in an interruption of benefits, or an increase in improper payments,” said Charles Blahous, senior research strategist at the Mercatus Center at George Mason University and a former public trustee for Social Security and Medicare.

Improper payments happen when the agency either overpays or underpays benefits due to inaccurate information.

Top Social Security official exits after refusing DOGE access to sensitive data

With fewer staff, the Social Security Administration will have to choose between making sure all claims are processed, which may lead to more improper payments, or avoiding those errors, which could lead to processing delays, Blahous said.

Disability benefits, which require more agency staff attention both to process initial claims and to continue to verify beneficiaries are eligible, may be more susceptible to errors compared to retirement benefits, he added.

Cuts may have minimal impact on trust funds

Under the Trump administration, Social Security also plans to consolidate its geographic footprint to four regions down from 10 regional offices, the agency said on Friday.

Ultimately, it remains to be seen how much savings the overall reforms will generate.

The Social Security Administration’s funding for administrative costs comes out of its trust funds, which are also used to pay benefits. Based on current projections, the trust funds will be depleted in the next decade and Social Security will not be able to pay full benefits at that time, unless Congress acts sooner.

The efforts to cut costs at the Social Security Administration would likely only help the trust fund solvency “in some miniscule way,” said Andrew Biggs, senior fellow at the American Enterprise Institute and former principal deputy commissioner of the Social Security Administration.

What President Donald Trump is likely looking to do broadly is reset the baseline on government spending and employment, he said.

“I’m not disagreeing with the idea that the agency could be more efficient,” Biggs said. “I just wonder whether you can come up with that by cutting the positions first and figuring out how to have the efficiencies later.”

Personal Finance

Student loan borrowers pursuing PSLF are ‘panicking.’ Here’s what to know

Published

8 hours ago

March 3, 2025

Business Finance News

Students walk through the University of Texas at Austin on February 22, 2024 in Austin, Texas.

Brandon Bell | Getty Images

As the Trump administration overhauls the student loan system, many borrowers pursuing the Public Service Loan Forgiveness program are worried about its future.

“There’s a lot of panicking by PSLF borrowers due to the uncertainty,” said higher education expert Mark Kantrowitz.

PSLF, which President George W. Bush signed into law in 2007, allows certain not-for-profit and government employees to have their federal student loans canceled after 10 years of payments.

Here’s what borrowers in the program need to know about recent changes affecting the program.

IDR repayment plan applications down

Some borrowers’ PSLF progress has stalled

While the legal challenges against SAVE were playing out, the Biden administration paused the payments for enrollees through a forbearance, as well as the accrual of any interest.

Unlike the payment pause during the pandemic, borrowers in this forbearance aren’t getting credit toward their required 120 payments for loan forgiveness under PSLF. It’s unclear when the forbearance will end.

But while the applications for other IDR plans remain unavailable, borrowers in SAVE are stuck on their timeline toward loan forgiveness, Kantrowitz said. If you were on an IDR plan other than SAVE, you will continue to get credit during this period if you’re making payments and working in eligible employment.

The Education Department is now tweaking the applications to make sure all their repayment plans comply with the new court order, an agency spokesperson told CNBC last week.

It will likely be months before the Department has reworked all the applications and made them available again, Kantrowitz said.

Those who switch to the Standard plan will continue to get PSLF credit, but the payments are often too high for those working in the public sector or for a nonprofit to afford, experts said.

‘Buy back’ opportunity can help

While it’s frustrating not to be inching toward loan forgiveness for the time being, an option down the road may help, said Betsy Mayotte, president of The Institute of Student Loan Advisors, a nonprofit.

The Education Department’s Buyback opportunity lets people pay for certain months that didn’t count, if doing so brings them up to 120 qualifying payments.

For example, time spent in forbearances or deferments that suspended your progress can essentially be cashed in for qualifying payments.

The extra payment must total at least as much as what you have paid monthly under an IDR plan, according to Studentaid.gov.

Borrowers who’ve now been pursuing PSLF for 10 years or more should put in their buyback request sooner than later, Kantrowitz said.

“The benefit is likely to be eliminated by the Trump administration,” he said.

Keep records

Borrowers have already long complained of inaccurate payment counts under the PSLF program. While the student loan repayment options are tweaked, people could see more errors, Kantrowitz said.

“A borrower’s payment history and other student loan details are more likely to get corrupted during a transition,” he said.

As a result, he said, those pursuing PSLF should print out a copy of their payment history on StudentAid.gov.

“It would also be a good idea to create a spreadsheet showing all of the qualifying payments so they have their own count,” Kantrowitz said.

With the PSLF help tool, borrowers can search for a list of qualifying employers and access the employer certification form. Try to fill out this form at least once a year, Kantrowitz added.

Personal Finance

Treasury Department halts enforcement of BOI reporting for businesses

Published

11 hours ago

March 3, 2025

Business Finance News

The US Treasury building in Washington, DC, US, on Monday, Jan. 27, 2025.

Stefani Reynolds | Bloomberg | Getty Images

The U.S. Department of the Treasury on Sunday announced it won’t enforce the penalties or fines associated with the Biden-era “beneficial ownership information,” or BOI, reporting requirements for millions of domestic businesses.

Enacted via the Corporate Transparency Act in 2021 to fight illicit finance and shell company formation, BOI reporting requires small businesses to identify who directly or indirectly owns or controls the company to the Treasury’s Financial Crimes Enforcement Network, known as FinCEN.

After previous court delays, the Treasury in late February set a March 21 deadline to comply or risk civil penalties of up to $591 a day, adjusted for inflation, or criminal fines of up to $10,000 and up to two years in prison. The reporting requirements could apply to roughly 32.6 million businesses, according to federal estimates.

The rule was enacted to “make it harder for bad actors to hide or benefit from their ill-gotten gains through shell companies or other opaque ownership structures,” according to FinCEN.

In addition to not enforcing BOI penalties and fines, the Treasury said it would issue a proposed regulation to apply the rule to foreign reporting companies only.

President Donald Trump praised the news in a Truth Social post on Sunday night, describing the reporting rule as “outrageous and invasive” and “an absolute disaster” for small businesses.

Other experts say the Treasury’s decision could have ramifications for national security.

“This decision threatens to make the United States a magnet for foreign criminals, from drug cartels to fraudsters to terrorist organizations,” Scott Greytak, director of advocacy for anticorruption organization Transparency International U.S., said in a statement.

Greg Iacurci contributed to this reporting.