The Federal Reserve's Interest Rates Have Taken CD Rates On a Wild Ride

The Federal Reserve's fight against inflation has pushed interest rates on mortgages, car loans and credit card debt higher, putting a dent in household budgets.

But it hasn't been all bad. The soaring fed funds rate has meant banks are offering the highest returns on deposits in decades.

CD rates began to climb in 2022 as inflation soared and the Fed began a campaign of rate hikes to quash it. While average rates are coming down from their peak in September, there are still 澳洲幸运5开奖号码历史查询:plenty of banks offering rates above the 5.5% mark.

 Inflation Has Fallen Faster Than Many Experts Thought Possible

Back in December 2022, officials at the Federal Reserve gave their best estimates for how fast inflation would be rising at the end of 2023. The median answer out of their best guesses was that prices, as measured by the Personal Consumption Expenditures index, would have risen 3.1% by the end of the year.

The actual number, reported Friday, would have seemed wildly optimistic back then. Indeed, only one out of the 19 members of the Federal Open Maꦐrket Committee who made guesses correctly predicted that it would fall to 2.6%.

Predictions of rapidly cooling inflation were rare back i🐼n 2022. Price increases spiked in June of that year to the highest since 1981 and only had slowly begun to retreat.

One of the economists predicting a rapid downshift in inflation was James Knightley, chief international economist at ING. In October 2022, he predicted that the Fed’s series of anti-inflation rate hikes would quickly squash inflation, bringing it back down to the Fed's desired 2% annual rate by the end of 2023.

澳洲幸运5开奖号码历史查询:By some measures, inflation in December actually was running at a rate consistent with that 2% goal. Investopedia emailed Knightley asking if he wanted to take a victory lap on behalf of the inflation optimists but he declined, noting that despite the recent slowdown, prices rose more than 2% over the year.

“That said there is a “two” handle on the inflation print, which few in the market expected at the time,” Knightley wrote in an email. “I wouldn’t be so bold as to say I called it, but the call that inflation would fall sharply was correct, I think. ‘Early 2024’ may be too soon to be below 2%, but I think we will be there by the summer.”

The Fed Probably Won't Change Interest Rates Next Week. But Will We Get More Info About a Cut?

Federal Reserve officials are wi🌟dely expected to hold their key interest rate steady at their meeting next Wednesday. That means all eyes will be on their communications for clues about whether they will cut that rate at their next meeting in March. 

The 澳洲幸运5开奖号码历史查询:Federal Open Market Committee’s statement and Fed Chair Jerome Powell’s press conference on Wednesday may provide some hints about the path of interest rates. However, don’t expect any definitive answers. Powell will likely say officials need to look at forthcoming economic reports before deciding to cut rates.

“We continue to expect the first rate cut in March, though we expect no strong signal in January,”&nb♋sp; Michael Gapen, U.S. economist at Bank of America Securities wrote in a commentary. “The Fed needs to buy time to see more data.”

Read more about expectations for the next FOMC meeting here.

Miami Renters Hit With Double-Digit Yearly Rent Increase

Rents surged in ma𓆉jor metro areas last year, with those in the Miami area being hit the hardest, with a 10.1% annual increase, the Bureau of Labor Statistics 🌸said Friday.

An important caveat: the government’s data may be a bit outdated due to the way it’s collected. Other measures of rent such as the Zillow Observed Rent Index, which are more up-to-date, show that rents only rose 3.3% on average, a little over half the 6.5% nationwide increase reported by the BLS. 

Rent increases have leveled off after spiking during the pandemic. Still, rent increases have hit household budgets hard. The percentage of renters who were cost-burdened (that is, spending more than 30% of their income on rent) rose to a record high of 50% in 2022, according to research released by the Harvard Joint Center on Housing this week. 

January's Trend in Car Sales: Smaller, Cheaper, And Powered By Gas

U.S. consumers are buying smaller and cheaper vehicles in January than they did the same month last year and were less likely to go electric.

That’s according to J.D. Power’s automotive forecast published Friday morning, which projected that average transaction prices for new and used cars have both fallen over the past year. The average new vehicle is selling for $45,106, a $1,636 decrease from a year ago, while the typical used car is going for $28,100, down $694.

Those reduced costs were mainly because automakers produced more of the 澳洲幸运5开奖号码历史查询:smaller, cheaper ca꧙rs thaꦆt are in demand these days, J.D. Power said.

Electric vehicles are making up 8.6% of all vehicles sold, down from 9.2% at the end of 2023. A change in the 澳洲幸运5开奖号码历史查询:electric vehicle tax credit—which is worth up to $7,500— that took effect Jan. 1 may have been responsible for the decline, J.D. Power said. As of 2024, the number of vehicles that 澳洲幸运5开奖号码历史查询:qualify for the credit was reduced.

Despite the downtick in transaction prices, consumers aren't getting much relief to their finances overall, since average auto loan interest rates are expected to tick up to 7.1%, leaving the average monthly payment just $6 less than it was in December. 🐈;

Pending Home Sales Jump 8.3% in December

An index tracking the number of homes pending 🌠sale reached 77.3 in December, an 8.3% jump from November. That is a change from November when pending home sales held steady.

Year-over-year the index was up up 1.3%.

"The housing market is off to a good start this year, as consumers benefit from falling mortgage rates and stable home prices," said Lawrence Yun, NAR chief economist. "Job additions and income growth will further help with housing affordability, but increased supply will be essential to satisfying all potential demand."

Pending home sales grew the most in the West where the index surged 14%.

Income Rose As US Economy Heads Toward Soft Landing

Personal income♐s once again rose faster than prices in December, according to Personal Consumption Expenditures data released by the Bureau of Economic Analysis Friday. Personal income rose 0.3% from November while prices only rose 0.2%, and spending jumped 0.7%, the most since September.

“I am sorry but we are no longer allowed to say ‘we are landing softly’ when we have been sitting on the runway for many months,” Arin Dube, a professor of economics at the University of Massachusetts Amherst, posted on X, the social media platform formerly called Twitter. “The great inflation of 2021/22 is over, and that's it.”

Read more about Friday's PCE report here.

Consumers Are Spending at the Expense of Their Savings

The savings rate hit a 12-month low, according to Friday's PCE report.

Personal savings totaled about $766.7 billion in December and savings only accounted for 3.7% of all disposable income. During the pandemic, that rate, also known as the personal saving rate, was as high as 32%. Friday's personal saving rate is nearly half of the pre-pandemic levels, which the Council of Economic Advisers said averaged 6.2% from 2016 to 2019.

"With consumer confidence rebounding and the state of households' balance sheets strong, saving rates could remain low this year," wrote Michael Pearce, lead U.S. economist at Oxford Economics. "But chances are there is at least some rebound in the saving rate, as consumers burn through the last of excess savings leftover from the pandemic."

Friday's report gave more fodder to economists who have been predicting a slowdown in spending for months as savings have dwindled and credit card balances have 澳洲幸运5开奖号码历史查询:risen to record highs.

"Households have depleted most of the $2.1 trillion of pandemic-related savings," wrote Nationwide Chief Economist Kathy Bostjancic. "With the savings rate low and credit card delinquencies rising, households will pull back on their spending reins."

PCE Price Index Comes in Flat for December

The Personal Consumption Expenditure Price In🦂dex (PCE) came in flat in December, showing prices increased 2.6% year-over🐻-year.

PCE is the Federal Reserve's preferred measure of inflation and shows how much prices for household items grew. Excluding the volatile food and energy prices, the index fell, showing 2.9% in December after a 3.2% growth in November.