Money Banking
Article updated on Jul 10, 2024
The Fed Chair's monetary update raises the possibility of an interest rate cut as early as September.
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Written by Tiffany Connors Editor Tiffany Wendeln Connors is a senior editor for CNET Money with a focus on credit cards. Previously, she covered personal finance topics as a writer and editor at The Penny Hoarder. She is passionate about helping people make the best money decisions for themselves and their families. She graduated from Bowling Green State University with a bachelor's degree in journalism and has been a writer and editor for publications including the New York Post, Women's Running magazine and Soap Opera Digest. When she isn't working, you can find her enjoying life in St. Petersburg, Florida, with her husband, daughter and a very needy dog.
Edited by Courtney Johnston Senior Editor Courtney Johnston is a senior editor leading the CNET Money team. Passionate about financial literacy and inclusion, she has a decade of experience as a freelance journalist covering policy, financial news, real estate and investing. A New Jersey native, she graduated with an M.A. in English Literature and Professional Writing from the University of Indianapolis, where she also worked as a graduate writing instructor.
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Written by Tiffany Connors Editor Tiffany Wendeln Connors is a senior editor for CNET Money with a focus on credit cards. Previously, she covered personal finance topics as a writer and editor at The Penny Hoarder. She is passionate about helping people make the best money decisions for themselves and their families. She graduated from Bowling Green State University with a bachelor's degree in journalism and has been a writer and editor for publications including the New York Post, Women's Running magazine and Soap Opera Digest. When she isn't working, you can find her enjoying life in St. Petersburg, Florida, with her husband, daughter and a very needy dog.
Edited by Courtney Johnston Senior Editor Courtney Johnston is a senior editor leading the CNET Money team. Passionate about financial literacy and inclusion, she has a decade of experience as a freelance journalist covering policy, financial news, real estate and investing. A New Jersey native, she graduated with an M.A. in English Literature and Professional Writing from the University of Indianapolis, where she also worked as a graduate writing instructor.
CNET staff -- not advertisers, partners or business interests -- determine how we review the products and services we cover. If you buy through our links, we may get paid.
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Our mission is to help you make informed financial decisions, and we hold ourselves to strict. This post may contain links to products from our partners, which may earn us a commission. Here’s a more detailed explanation of .
Key takeaways
- A softening labor market could potentially outweigh inflationary risks when deciding whether to cut interest rates, said Chair Jerome Powell during today’s congressional testimony.
- The US economy has made “considerable progress” toward the Fed’s 2% inflation goal over the past two years, according to Powell.
- The latest Consumer Price Index inflation data is set to be released on Thursday, but it’s unlikely to affect how the Fed votes on interest rates during its meeting at the end of the month.
The job market’s “considerable cooling” is now potentially a greater threat to the economy than high inflation, strengthening the case for interest rate cuts, according to US Federal Reserve Chair Jerome Powell.
“Elevated inflation is not the only risk we face,” Powell said during his two-day semiannual address to Congress on monetary policy.
It turns out, waiting until inflation hits the Fed’s 2% target before cutting interest rates is a bad idea.
“You don’t want to wait until inflation gets all the way down to 2% because inflation has a certain momentum,” he told the House Committee on Financial Services today. “If you waited that long, you’ve probably waited too long.”
Powell’s comments come on the heels of last week’s job numbers from the Bureau of Labor Statistics. Although still low, unemployment inched up again slightly in June to 4.1%. The gradual softening of the labor market has led some experts to anticipate that the Fed could finally cut interest rates before the end of the year, and maybe more than once.
“I now expect the Fed to cut their federal funds rate target in September and again inDecember,” said Robert Fry, chief economist at Robert Fry Economics.
After ticking back up in the first quarter of 2024, we’ve seen “modest” progress in slowing inflation, Powell noted. US consumer prices were unchanged month over month in May, according to Consumer Price Index data released by the Bureau of Labor Statistics. Annual inflation increased by 3.3%, slightly down from April’s 3.4% annual increase.
But the committee needs to see a sustained improvement in inflation numbers before it makes adjustments to the federal funds rate, according to Powell. That means even if Thursday’s CPI report shows inflation cooling again, it won’t likely alter the Federal Open Market Committee’s vote later this month. The Fed is expected to once again hold interest rates at a target rate of 5.25% to 5.5%, the level they’ve been at since July 2023.
Here’s why everyone is trying to interpret Powell’s tea leaves, and what it means for your money.
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How could interest rate cuts affect you?
The federal funds rate is the interest rate banks charge each other for borrowing and lending. When this rate goes up, banks tend to also raise rates on consumer products like credit cards and loans, making it more costly to borrow money. The Fed raised interest rates throughout 2022 and 2023 to put the brakes on runaway inflation, which spiked in the wake of the pandemic.
Even if the Fed votes to cut the federal funds rate in September, it would likely be incremental. One interest rate cut alone is unlikely to lower your credit card APR much. So if you have high-interest debt, consider implementing a debt payoff strategy orapplying for a balance transfer card or debt consolidation loan.
If you’re waiting for rates to fall to buy a home, experts suggest focusing on the factors you can control, instead. And while it isn’t a buyer’s market in most areas of the country, slowing home sales could offer an opportunity to negotiate with a motivated seller for a lower price.
Lastly, if you’re working on saving more money, take advantage of higher interest rates with a high-yield savings account or high-yield certificate of deposit, to grow your savings faster.
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Tiffany Wendeln Connors is a senior editor for CNET Money with a focus on credit cards. Previously, she covered personal finance topics as a writer and editor at The Penny Hoarder. She is passionate about helping people make the best money decisions for themselves and their families. She graduated from Bowling Green State University with a bachelor's degree in journalism and has been a writer and editor for publications including the New York Post, Women's Running magazine and Soap Opera Digest. When she isn't working, you can find her enjoying life in St. Petersburg, Florida, with her husband, daughter and a very needy dog.