Inflation cools again in September, strengthening the case for another rate cut

Inflation numbers cooled again in September, bolstering expectations for another interest rate cut at next week’s Federal Reserve meeting.

The Fed’s preferred inflation gauge rose 2.1 percent annually in September, as expected. On a month-on-month basis, prices rose 0.2%, according to the personal consumption expenditure index released on Thursday by US Department of Commerce.

Core inflation, which excludes food and energy, reached 2.7% annually. Although headline inflation continued a downward trend, core inflation remained stuck at or near 2.7% throughout the summer. Housing and health care costs continue to be the biggest contributors to price increases.

The latest inflation data, along with continued signs of a cooling labor market, have most experts predicting the Fed will cut interest rates by a quarter of a percentage point at its meeting next week.

The Fed surprised some in September when it voted to cut the federal funds rate by half a percent instead of the expected quarter percent. Federal Open Market Committee cut the federal funds rate to 4.75% to 5% after holding interest rates at record levels for more than a year in an attempt to bring inflation back down to 2%.

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With inflation nearing its target, the Fed has now shifted its focus to boosting a weakening labor market. Lower interest rates can encourage companies to borrow more money which they can then invest in hiring and expansion.

So what do the latest inflation figures mean for your finances for the rest of 2024 and beyond?

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Why does inflation matter?

Inflation measures how much prices for goods and services rise. Inflation is not necessarily bad. If demand drives prices up, inflation can be a sign of a growing economy and consumers confident enough to spend. However, when inflation outpaces wages, as it has in the wake of the pandemic, your purchasing power drops — essentially, you can’t buy as much with the same amount of money.

The Fed began raising interest rates in early 2022 to try to bring inflation back under control. After the September meeting, the Fed said it had “greater confidence” that inflation was moving sustainably toward its 2 percent target.

However, even if prices are not rising as fast, they are still high for most of us. A CNET poll found that most people are making sacrifices this holiday season to keep their expenses under control.

Pro tip: If you’re struggling to break free from the paycheck-to-paycheck cycle, check these out expert advice.

When will we get relief from high interest rates?

While it was the biggest single rate cut since 2008, the Fed still only dropped the federal funds rate by half a percent, which doesn’t really move the needle on interest rates for most people. To see real relief, we’ll need more rate cuts, as well as time to let them take effect, experts say.

Cuts of a quarter of a percent are expected at next week’s and December’s meetings, plus more cuts are likely in 2025. If all goes as expected, we could see a long-term easing of mortgage rates and Credit card APR in 2025, experts predict.

However, the interest rate for saving products such as CDs and high yield savings accounts it also falls when the Fed cuts rates. Many installments have has already begun to declinebut you may still have time to maximize your earnings.