Major News on Interest Rates

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Major News on Interest Rates

This week’s inflation report could be a milestone on the path to lowering interest rates.

  • The report on Friday is expected to show that inflation is slowly decreasing,
    paving the way for the Federal Reserve to lower its key interest rate later this year.
  • Consumer income and spending are likely to slow down in April,
    according to forecasts, indicating weaker economic momentum.
  • There is rising anticipation that the Federal Reserve will begin cutting interest rates in November or December, which would alleviate some upward pressure on interest rates for all types of loans.

 

 

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Details

If you are waiting for lower interest rates on mortgages and other loans,
the key inflation report on Friday might be a step in the right direction,
even though a drop in interest rates is not expected anytime soon.
Consumer prices are likely to rise, according to the Personal Consumption Expenditures (PCE) index from the Bureau of Economic Analysis, by 0.3% in April compared to March,
achieving a 2.7% year-over-year increase, according to a survey of forecasters by Dow Jones Newswires
and The Wall Street Journal.
Both figures would be the same as in March if these predictions hold true.

This could ease concerns about accelerating price increases,
which were fueled by hotter-than-expected inflation in the first quarter.

More importantly, core inflation, which excludes volatile food and energy prices,
is expected to rise by 0.2%, slowing from a 0.3% rate in March.
This is significant because Federal Reserve officials closely monitor core inflation.
They view it as an indicator of broader inflation trends and take it into account when setting central bank monetary policy, which significantly affects interest rates on all types of loans.

 

 

 

 

 

 

Prices

Awaiting a decrease in price increases Since last July, Federal Reserve officials have kept the key federal funds rate at its highest level since 2001 to curb inflation. They have been waiting for signals indicating that price increases will return to an annual rate of 2% before lowering the federal funds rate.

Worse-than-expected inflation reports earlier this year dampened hopes that rate cuts would come this summer, and forecasters are now focused on whether these cuts will begin by the end of the year. For instance, Federal Reserve Governor Christopher Waller said last week that officials would need to see “several more months of good inflation data” before supporting rate cuts.

Federal Reserve officials are trying to balance the need to control inflation with high interest rates and the damage these high rates do to the economy, potentially slowing the economy too much and leading to a recession.

 

 

 

 

 

 

Interest Rates

Timing of potential interest rate cuts Broader financial markets are more optimistic than Deutsche Bank about the timing of potential interest rate cuts. As of Tuesday, traders were expecting a 55% chance of a cut by November, according to the CME Group’s FedWatch tool, which predicts interest rate moves based on federal funds futures trading data.

The report will also include data on consumer spending and income, which can also influence interest rate decisions and serve as a measure of the financial health of American households. Forecasters expect personal income to grow by 0.3% in April compared to March, a slowdown from 0.5% in the previous month, and spending to rise by 0.4%, half the growth rate of 0.8% in March.

 

 

Major News on Interest Rates