For months now, the Federal Reserve has been on a mission. It wants to help lower inflation levels so that consumers get the relief they’ve been desperately seeking for months.
To that end, the Fed has been implementing aggressive interest rate hikes this year in the hopes that doing so will make borrowing expensive enough for consumers to do less of it. While the Fed doesn’t directly set consumer borrowing rates (rather, it sets the rate banks charge one another for short-term borrowing), its rate hikes tend to influence consumer interest rates, like mortgage rates, credit card rates, and personal loan rates.
Meanwhile, economists were anticipating a lower Consumer Price Index (CPI) reading in August than they saw in July. The CPI measures changes in the cost of consumer goods and is a key indicator of just how bad inflation is.
On Sept. 13, the U.S. The Bureau of Labor Statistics released its August CPI data, and much to economists’ surprise, the index actually rose 0.1% from the previous month and 8.3% on an annual basis. That alone may be upsetting to consumers, as it means inflation is still soaring. But what’s apt to impact consumers even more is another Fed rate hike that forces them to change their lifestyles or put certain plans on hold.
The Fed is unlikely to back down
The Fed takes CPI data into account when determining whether to raise interest rates, and to what extent. Following August’s numbers, we can pretty much bet on another aggressive rate hike. That could prove problematic if you’re planning to apply for a large loan in the near term, as it could leave you with a higher interest rate on that debt and higher monthly payments than you’d like.
Now on the plus side, when consumer borrowing rates increase as a result of Federal Reserve rate hikes, savings account interest rates tend to follow that same pattern. So what you lose in the form of higher borrowing costs, you might gain in the form of more generous interest from your bank.
But still, if you’re on the cusp of applying for a loan (say, you’re renovating your house and need to take out a loan to finance that project), you may want to get moving sooner rather than later — before the Fed’s next rate hike. Otherwise, you could get stuck with loan payments that fall outside your financial comfort zone.
When will inflation finally ease?
It’s hard to say when inflation might go down. A big measure that goes into the CPI is gas prices, which declined notably in August. Unfortunately, the index managed to rise nonetheless as other costs, like food, increased.
We could be in for many more months of rampant inflation, and those who are struggling in the wake of higher bills may need to come to terms with reassessing their budgets and making some cutbacks. This especially holds true for those who have racked up debt over the past year due to inflation.
The one silver lining is that while living costs may be up, the job market is strong. So if you’re struggling to cover your bills, getting a second job may be more feasible now than it was a couple of years ago. That’s an option you may want to jump on — especially if you’re tired of seeing your credit card balance rise month after month.