Tag: Federal Reserve System

The Federal Reserve leaves rates unchanged. Here’s how it impacts your money

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The Federal Reserve left its target federal funds rate unchanged Wednesday, but did not signal an end to its aggressive rate hike campaign.

For households, that offers little relief from sky-high borrowing costs.

Altogether, Fed officials have raised rates 11 times in a year and a half, pushing the key interest rate to a target range of 5.25% to 5.5%, the highest level in more than 22 years.

“I’m worried for the consumer,” said Tomas Philipson, University of Chicago economist and a former chair of the White House Council of Economic Advisers. “People are hit on both fronts — lower real wages and higher rates.”

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Since wage growth for many Americans hasn’t been able to keep pace with higher prices, those households are getting squeezed and are going into debt just when borrowing rates are spiking, Philipson said.

Real average hourly earnings fell 0.5% in August, while borrowers are paying more on credit cards, student loans and other types of debt.

“Borrowing is very expensive, period,” Philipson said.

What the federal funds rate means for you

The federal funds rate, which is set by the central bank, is the interest rate at which banks borrow and lend to one another overnight. Although that’s not the rate consumers pay, the Fed’s moves still affect the borrowing and savings rates they see every day.

Here’s a breakdown of how the central bank’s increases so far have affected consumers:

Credit cards

Since most credit cards have a variable rate, there’s a direct connection to the Fed’s benchmark. As the federal funds rate rose, the prime rate did as well, and credit card rates followed suit.

Credit card annual percentage rates are now more than 20%, on average — an all-time high. Further, with most people feeling strained by higher prices, more cardholders carry debt from month to month.

For those who carry a balance, there’s not much relief in sight, according to Matt Schulz, chief credit analyst at LendingTree.

“Even though the Fed chose not to raise rates in September, the truth is that no one should expect credit card interest rates to stop rising anytime soon,” he said.

In the meantime, knocking down that debt “should absolutely be the goal,” he said.

Home loans

Although 15-year and 30-year mortgage rates are fixed, and tied to Treasury yields and the economy, anyone shopping for a new home has lost considerable purchasing power, partly because of inflation and the Fed’s policy moves.

The average rates for a 30-year, fixed-rate mortgage “remain anchored north of 7%,” said Sam Khater, Freddie Mac’s chief economist.

“The reacceleration of inflation and strength in the economy is keeping mortgage rates elevated,” he said.

Other home loans are more closely tied to the Fed’s actions. Adjustable-rate mortgages and home equity lines of credit, or HELOCs, are pegged to the prime rate. Most ARMs adjust once a year after an initial fixed-rate period. But a HELOC rate adjusts right away. Already, the average rate for a HELOC is up to 9.12%, the highest in 22 years, according to Bankrate.

“That HELOC is no longer low-cost debt and it warrants a much higher focus on repayment than it has for a long time,” said Greg McBride, chief financial analyst at Bankrate.com.

Auto loans

Even though auto loans are fixed, payments are getting bigger because the price for all cars is rising along with the interest rates on new loans.

The average rate on a five-year new car loan is now 7.46%, the highest in 15 years, according to Bankrate.

Experts say consumers with higher credit scores may be able to secure better loan terms or shop around for better deals. Car buyers could save an average of $5,198 by choosing the offer with the lowest APR over the one with the highest, according to a recent report from LendingTree.

Student loans

Federal student loan rates are also fixed, so most borrowers aren’t immediately affected by the Fed’s moves. But undergraduate students who take out new direct federal student loans are now paying 5.50% — up from 4.99% in the 2022-23 academic year and 3.73% in 2021-22.

For those with existing debt, interest is now accruing again as of Sept. 1. In October, millions of borrowers will make their first student loan payment after a three-year pause.

Private student loans tend to have a variable rate tied to the Libor, prime or Treasury bill rates — and that means that those borrowers are already paying more in interest. How much more, however, varies with the benchmark.

Savings accounts

While the central bank has no direct influence on deposit rates, the yields tend to be correlated to changes in the target federal funds rate. The savings account rates at some of the largest retail banks, which were near rock bottom during most of the Covid pandemic, are currently up to 0.43%, on average, according to the Federal Deposit Insurance Corp.

Thanks, in part, to lower overhead expenses, top-yielding online savings account rates are now paying over 5%, according to Bankrate, which is the most savers have been able to earn in more than 15 years.

Because the top online savings accounts are currently beating inflation, “money in a savings account is no longer a drag on your portfolio,” McBride said. And yet, only 22% of savers are earning 3% or more on their accounts, according to another Bankrate report.

“Boosting emergency savings is rewarded with returns exceeding 5%, if you’re putting the money in the right place,” McBride said.

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September 20, 2023
The Federal Reserve may not hike interest rates this week. What that means for you

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Artistgndphotography | E+ | Getty Images

The Federal Reserve is likely to skip an interest rate hike when it meets this week, experts predict. But consumers may not feel any relief.

The central bank has already raised interest rates 11 times since last year — the fastest pace of tightening since the early 1980s.

Yet recent data is still painting a mixed picture of where the economy stands. Overall growth is holding steady as consumers continue to spend, but the labor market is beginning to loosen from historically tight conditions.

At the same time, inflation has shown some signs of cooling even though it remains well above the Fed’s 2% target.

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Even with a break in rate hikes, “the one thing that remains very clear is that the Fed is nowhere close to cutting rates,” said Greg McBride, chief financial analyst at Bankrate.com. “Rates remain really high and will stay there for a while.”

The federal funds rate, which is set by the U.S. central bank, is the interest rate at which banks borrow and lend to one another overnight. Although that’s not the rate consumers pay, the Fed’s moves still affect the borrowing and savings rates they see every day.

Here’s a breakdown of how the impact has already been felt:

Credit card rates top 20%

Most credit cards come with a variable rate, which has a direct connection to the Fed’s benchmark rate.

After the previous rate hikes, the average credit card rate is now more than 20% — an all-time high, while balances are higher and nearly half of credit card holders carry the debt from month to month, according to an earlier Bankrate report.

Mortgage rates are above 7%

Although 15-year and 30-year mortgage rates are fixed, and tied to Treasury yields and the economy, anyone shopping for a new home has lost considerable purchasing power, partly because of inflation and the Fed’s policy moves.

The average rates for a 30-year, fixed-rate mortgage “remain anchored north of 7%,” said Sam Khater, Freddie Mac’s chief economist. “The reacceleration of inflation and strength in the economy is keeping mortgage rates elevated.”

Adjustable-rate mortgages, or ARMs, and home equity lines of credit, or HELOCs, are pegged to the prime rate. As the federal funds rate rose, the prime rate did, as well, and these rates followed suit.

Now, the average rate for a HELOC is up to 9.12%, the highest in 22 years, according to Bankrate. “That HELOC is no longer low-cost debt and it warrants a much higher focus on repayment than it has for a long time,” McBride said.

Auto loan rates top 7%

Even though auto loans are fixed, payments are getting bigger because the price for all cars is rising along with the interest rates on new loans.

The average rate on a five-year new car loan is now 7.46%, the highest in 15 years, according to Bankrate.

Experts say consumers with higher credit scores may be able to secure better loan terms or shop around for better deals. Car buyers could save an average of $5,198 by choosing the offer with the lowest APR over the one with the highest, according to a recent report from LendingTree.

Federal student loans are now at 5.5%

Federal student loan rates are also fixed, so most borrowers aren’t immediately affected by the Fed’s moves. But undergraduate students who take out new direct federal student loans are now paying 5.50% — up from 4.99% in the 2022-23 academic year and 3.73% in 2021-22.

For those with existing debt, interest is now accruing again as of Sept. 1. In October, millions of borrowers will make their first student loan payment after a three-year pause.

Private student loans tend to have a variable rate tied to the Libor, prime or Treasury bill rates — and that means that those borrowers are already paying more in interest. How much more, however, varies with the benchmark.

Deposit rates at some banks are up to 5%

While the Fed has no direct influence on deposit rates, the yields tend to be correlated to changes in the target federal funds rate. The savings account rates at some of the largest retail banks, which were near rock bottom during most of the Covid pandemic, are currently up to 0.43%, on average, according to the Federal Deposit Insurance Corporation, or FDIC.

Average rates have risen significantly in the last year, but they are still very low compared to online rates, according to Ken Tumin, founder of DepositAccounts.com.

Thanks, in part, to lower overhead expenses, top-yielding online savings account rates are now paying over 5%, according to Bankrate, which is the most savers have been able to earn in more than 15 years.

However, if the Fed skips a rate hike at its September meeting, then those deposit rate increases are likely to slow, Tumin said.

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September 18, 2023
CNBC Daily Open: Why did the unemployment rate and jobs rise in tandem?

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A hiring sign is pictured at a McDonald’s restaurant in Garden Grove, California on July 8, 2022.

Robyn Beck | Afp | Getty Images

This report is from today’s CNBC Daily Open, our new, international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.

What you need to know today

More jobs but higher unemployment
U.S. nonfarm payrolls for August increased by 187,000, above the 170,000 estimate. However, the unemployment rate jumped from 3.5% last month to 3.8%, the highest since February 2022. Average hourly earnings increased 4.3% year on year, below the forecast of 4.4%. Combined with the downwardly revised figures for June and July, those are clear signs the U.S. jobs market is slowing.

Positive outlook for markets
U.S. stocks cheered the moderate jobs report and mostly inched up Friday, giving major indexes their best week in months. Asia-Pacific markets rose Monday, with Hong Kong’s Hang Seng index popping as much as 2.6%. That’s thanks to Hong Kong-listed property stocks, which surged after creditors allowed Country Garden Holdings to delay payment for an onshore bond.

Electric vehicle moves
Tesla shares slid 5% Friday after the company cut prices on its electric vehicles in both the U.S. and China. Meanwhile in Germany, BMW and Mercedes revealed EV concepts, representing their biggest push yet into the EV market. But that might not be enough to stop China’s dominance. Chinese EV companies all delivered enough vehicles in August to keep pace with their third-quarter guidance.

JPMorgan Chase and Jeffrey Epstein
JPMorgan Chase notified the U.S. Treasury Department of more than $1 billion in transactions related to “human trafficking” by Jeffrey Epstein, a lawyer for the U.S. Virgin Islands told a federal judge. Those transactions dated back 16 years and were only reported after Epstein was arrested and killed himself in jail in 2019, said Mimi Liu, an attorney for the Virgin Islands.

[PRO] Slow start to September
U.S. markets are closed Monday for Labor Day and economic data coming out this week is on the light side. The heavy hitters, like the consumer and producer price indexes, will only be released later in the month. So keep an eye out for these signs that will indicate whether stocks will fall prey to the September seasonality — the month’s historically been the weakest for stocks.

The bottom line

The U.S. economy added more jobs than expected in August, but the overall unemployment rate rose. This may sound counterintuitive since it’s natural to assume an increase in the number of jobs will lead unemployment going down. But there’s a simple explanation for that.

By definition, the unemployment rate is the number of unemployed people (people without a job but are actively looking for one), divided by the labor force (the sum of people both employed and unemployed), expressed as a percentage.

If the unemployment rate goes up, that means the proportion of people looking for a job compared with the total labor force has grown. That’s straightforward enough. For the unemployment rate to go up even as there were 187,000 more jobs in August means there were more people who started looking for a job than people who secured one. The implication: The total labor force grew in August. Indeed, 597,000 people without work experience sought employment last month, according to the report.

A growing labor force is a looser jobs market. That probably contributed to the lower-than-expected wage growth last month. As Bank of America U.S. economist Stephen Juneau wrote, “The broad message here seems to be that we are nearing full employment, with supply and demand coming more into balance.”

That will come as a relief to Federal Reserve officials worried about a hot jobs market contributing to inflation. Investors, too, cheered the jobs report. They think there’s a 93% chance the Fed will keep rates unchanged at its September meeting and a 65.3% chance at its November meeting, according to the CME FedWatch Tool. That’s up from 80% and 44.5% a week ago, respectively.

Major indexes rose in response to the jobs report as well. The S&P 500 climbed 0.18% Friday, giving it a 2.5% increase for the week — its best weekly performance since June. The Dow Jones Industrial Average added 0.33% to close 1.4% higher for the week. The Nasdaq Composite was essentially flat, but ended the week up 3.3%. That was both indexes’ best showing since July.

U.S. markets are closed today, so we’ll have to wait to see if they can sustain this momentum and defy September’s reputation as the worst month for stocks.

— CNBC’s Jeff Cox contributed to this report

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September 3, 2023
CNBC Daily Open: Why did the unemployment rate rise even as jobs were added?

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A Chipotle restaurant advertises it is hiring in Cambridge, Massachusetts, August 28, 2023.

Brian Snyder | Reuters

This report is from today’s CNBC Daily Open, our new, international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.

What you need to know today

More jobs but higher unemployment
U.S. nonfarm payrolls for August increased by 187,000, above the 170,000 estimate. However, the unemployment rate jumped from 3.5% last month to 3.8%, the highest since February 2022. Average hourly earnings increased 4.3% year on year, below the forecast of 4.4%. Combined with the downwardly revised figures for June and July, those are clear signs the U.S. jobs market is slowing.

Winning week for markets
U.S. stocks cheered the moderate jobs report and mostly inched up Friday, giving major indexes their best week in months. European markets traded mixed. The regional Stoxx 600 closed flat, the U.K.’s FTSE 100 added 0.34% but other major bourses ended the day in the red. For August, the Stoxx 600 lost 2.8%.

Tesla’s price cut hits shares
Tesla shares slid 5% after the company cut prices on its electric vehicles in both the U.S. and China. Additionally, the price of Tesla’s Full Self-Driving software, its premium driver assistance option, was reduced by $3,000. CEO Elon Musk previously said the price would only ever go up. Despite the fall, Tesla shares are still up almost 100% this year.

JPMorgan Chase and Jeffrey Epstein
JPMorgan Chase notified the U.S. Treasury Department of more than $1 billion in transactions related to “human trafficking” by Jeffrey Epstein, a lawyer for the U.S. Virgin Islands told a federal judge. Those transactions dated back 16 years and were only reported after Epstein was arrested and killed himself in jail in 2019, said Mimi Liu, an attorney for the Virgin Islands.

[PRO] Slow start to September
U.S. markets are closed Monday for Labor Day and economic data coming out this week is on the light side. The heavy hitters, like the consumer and producer price indexes, will only be released later in the month. So keep an eye out for these signs that will indicate whether stocks will fall prey to the September seasonality — the month’s historically been the weakest for stocks.

The bottom line

The U.S. economy added more jobs than expected in August, but the overall unemployment rate rose. This may sound counterintuitive since it’s natural to assume an increase in the number of jobs will lead unemployment going down. But there’s a simple explanation for that.

By definition, the unemployment rate is the number of unemployed people (people without a job but are actively looking for one), divided by the labor force (the sum of people both employed and unemployed), expressed as a percentage.

If the unemployment rate goes up, that means the proportion of people looking for a job compared with the total labor force has grown. That’s straightforward enough. For the unemployment rate to go up even as there were 187,000 more jobs in August means there were more people who started looking for a job than people who secured one. The implication: The total labor force grew in August.

A growing labor force is a looser jobs market. That probably contributed to the lower-than-expected wage growth last month. As Bank of America U.S. economist Stephen Juneau wrote, “The broad message here seems to be that we are nearing full employment, with supply and demand coming more into balance.”

That will come as a relief to Federal Reserve officials worried about a hot jobs market contributing to inflation. Investors, too, cheered the jobs report. They think there’s a 93% chance the Fed will keep rates unchanged at its September meeting and a 65.3% chance at its November meeting, according to the CME FedWatch Tool. That’s up from 80% and 44.5% a week ago, respectively.

Major indexes rose in response to the jobs report as well. The S&P 500 climbed 0.18% Friday, giving it a 2.5% increase for the week — its best weekly performance since June. The Dow Jones Industrial Average added 0.33% to close 1.4% higher for the week. The Nasdaq Composite was essentially flat, but ended the week up 3.3%. That was both indexes’ best showing since July.

U.S. markets are closed today, so we’ll have to wait to see if they can sustain this momentum and defy September’s reputation as the worst month for stocks.

— CNBC’s Jeff Cox contributed to this report

Correction: This article has been updated to reflect the correct month of the jobs report.

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September 3, 2023
CNBC Daily Open: Jobs growth slowed down. Markets shot up

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A help wanted sign on a storefront in Ocean City, New Jersey, US, on Friday, Aug. 18, 2023. Surveys suggest that despite cooling inflation and jobs gains, Americans remain deeply skeptical of the president’s handling of the post-pandemic economy. Photographer: Al Drago/Bloomberg via Getty Images

Al Drago | Bloomberg | Getty Images

This report is from today’s CNBC Daily Open, our new, international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.

What you need to know today

Bonanza profits for UBS
Net profit for UBS hit $28.88 billion in the second quarter, far higher than the $12.8 billion expected. That’s the Swiss bank’s first quarterly earnings since it acquired Credit Suisse. Earlier this month, UBS announced it had terminated a 9 billion Swiss franc ($10.24 billion) loss protection agreement with the Swiss government, suggesting the bank’s integration of Credit Suisse is going smoothly.

Job creation slowed
Job growth in the U.S. slowed to 177,000 in August, according to payroll company ADP. That’s fewer than economists’ expectation of 200,000 — which is itself already much lower than July’s downwardly revised 371,000. It’s a sign the effects of high interest rate are starting to be felt, giving traders hope the Federal Reserve might pause hikes.

Markets regain ground
U.S. stocks rallied Wednesday on the back of weaker-than-expected economic data, giving the S&P 500 a four-day winning streak. Asia-Pacific markets traded mixed Thursday. Japan’s Nikkei 225 rose around 1% as data showed retail sales for July jumping 6.8% year on year, sharply higher than the expected 5.4%. But China’s Shanghai Composite lost 0.5% as economic data disappointed again.

Mixed signs in China
China’s factory activity in August shrank for the fifth straight month, but at a slower pace than July. Non-manufacturing activity expanded for the month, but dipped to its lowest level this year. Meanwhile, retail sales in August experienced a marked increase compared with July, according to the China Beige Book’s survey of Chinese businesses.

[PRO] China plus three
Amid a prolonged downturn in China’s economy, investors are growing bearish on the stock market. But this could be an opportunity for investors to put their money into other Asian markets, analysts say. Here are the three Asian markets analysts recommend — and the best ways to play them.

The bottom line

Bad news is good news again for markets.

Markets last week were gripped by the fear that interest rates will remain high — or go even higher than they already are — in the face of an unyieldingly strong economy and stubborn inflation. (Recall how the 10-year Treasury yield, which typically reflects rate expectations, hit a 16-year high last week.)

Those worries dissipated somewhat Wednesday.

New data showed that economic growth, while still hot enough to suggest a soft landing, was not quite as scorching as previously thought. Second-quarter gross domestic product the U.S. was revised downwards from 2.4% to 2.1% on an annualized basis.

Moreover, job creation for August was lower than expected. In another encouraging sign that inflation might be moderating, pay growth for workers slowed, regardless of whether they changed jobs or stayed in their current positions, according to ADP.

“This month’s numbers are consistent with the pace of job creation before the pandemic,” Nela Richardson, chief economist at ADP, said in a press release. “After two years of exceptional gains tied to the recovery, we’re moving toward more sustainable growth in pay and employment as the economic effects of the pandemic recede.”

In sum, there’s hope the Federal Reserve might loosen its grip on monetary policy, based on the weaker-than-expected economic data. Markets cheered the news.

The S&P 500 rose 0.38%. It might seem a small figure, but it’s statistically significant for a few reasons: One, it gives the index a four-day winning streak; two, it helped the index close above 4,500, breaking a key psychological barrier; three, it helped to trim August’s losses to around 1.6%, down from an intraday low of 5.53% on August 18. The Dow Jones Industrial Average inched up 0.11% and the Nasdaq Composite climbed 0.54%.

For tomorrow, look out for the personal consumption expenditures index, which measures how much consumers spent in July. If inflation numbers come in soft, then that completes the trifecta of data — economic growth, jobs and inflation — that the Fed wants to see slow down. Then markets can probably heave a sigh of relief, for now.

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August 30, 2023
Here’s why Americans can’t stop living paycheck to paycheck

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For many Americans, payday can’t come soon enough. As of June, 61% of adults are living paycheck to paycheck, according to a LendingClub report. In other words, they rely on those regular paychecks to meet essential living expenses, with little to no money left over.

Almost three-quarters, 72%, of Americans say they aren’t financially secure given their current financial standing, and more than a quarter said they will likely never be financially secure, according to a survey by Bankrate.

“There are actually millions of people struggling,” said Ida Rademacher, vice president at the Aspen Institute. “It’s not something that people want to talk about, but if you were in a place where your financial security feels superprecarious, you’re not alone.”

This struggle is nothing new. Principal Financial Group found in 2010 that 75% of workers were concerned about their financial futures. What’s more, since 1979, wages for the bottom 90% of earners had grown just 15%, compared with 138% for the top 1%, according to a 2015 Economic Policy Institute report. But there’s now a renewed focus on wage-earner anxiety amid higher inflation and rising interest rates.

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The typical worker takes home $3,308 per month after taxes and benefits, based on the latest data from the U.S. Bureau of Labor Statistics. But when you take a look at the cost of some of the most essential expenses today, it’s easy to see why consumers feel strained.

The median monthly rent in the U.S. was $2,029 as of June, according to Redfin. That amount already accounts for about 61% of the median take-home pay.

Meanwhile, the Council for Community and Economic Research reported that the median mortgage payment for a 2,400–square-foot house was $1,957 per month during the first quarter of 2023, which accounts for about 59% of the median take-home pay.

“Inflation is really hurting individuals having stability in their housing,” said certified financial planner Kamila Elliott, co-founder and CEO of Collective Wealth Partners in Atlanta. She is a member of CNBC’s Financial Advisor Council. “If you have uncertainty in your housing, it causes uncertainty everywhere.”

Combine that with the average $690.75 Americans spend each month on food and out-of-pocket health expenditures that cost the average American $96.42 monthly, and you get a total expense of $2,816.17 for renters and $2,744.17 for homeowners.

That amount already accounts for just over 85% of the median take-home pay for average American renters and almost 83% for an average homeowner. This is excluding other essential expenses such as transportation, child care and debt payments.

“So much of managing your financial life in America today is like drinking from a firehose that many households are not able to show up and impose a framework of their own design onto their finances,” said Rademacher. “Many are still in this reactionary space where they’re just trying to figure out how to make ends meet.”

Watch the video to learn more about why financial security feels so impossible in the U.S. today.

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August 17, 2023
As recession fears fade, we may be experiencing a ‘richcession’ instead — here’s what that means for you

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A ‘richcession’ may be underway

“In most recessions, unemployment rises more for lower-income groups,” said Tomas Philipson, a professor of public policy studies at the University of Chicago and former acting chair of the White House Council of Economic Advisers.

“Although we are not in an overall recession yet, the demand for and wages of lower-income groups are outpacing higher-income groups.”

Maskot | Digitalvision | Getty Images

The start of the year was plagued by waves of layoffs: Employers announced plans to cut 481,906 jobs in the first seven months, up 203% from the 159,021 cuts for the year-earlier period, according to Challenger, Gray & Christmas, a global outplacement and business and executive coaching firm.

Some sectors, such as banking and tech, have been particularly hard hit, and a series of Wall Street layoffs earlier this summer fueled fears that a recession still looms driven by those professional job losses.

But there still aren’t enough workers to fill open positions in the service industry and the unemployment rate remains near a 50-year low at just 3.5%.

What a ‘richcession’ means for consumers

“Recession is a loaded term,” said Jacob Channel, senior economist at LendingTree. “White-collar jobs might not be as plentiful as they were last year, but they’re still around.”

And “at the end of the day, even if white-collar hiring does appear to be on the decline, that doesn’t mean that the entire economy as a whole is struggling,” Channel said.

“On the contrary, most current data indicates that despite numerous headwinds, the broader economy is doing remarkably well, all things considered,” he added.

But regardless of the country’s economic standing, many Americans are feeling the pain of higher prices and most have exhausted their savings and are now leaning on credit cards to make ends meet.

Several reports show financial well-being is deteriorating. Rather than a “richcession,” this more closely resembles a so-called K-shaped recovery, said Greg McBride, Bankrate.com’s chief financial analyst.

Wealthy Americans aren’t exactly suffering, but credit card debt is at an all-time high and 61% of adults are living paycheck to paycheck. “Those are signs of financial strain,” he said.

However this economic period is ultimately defined, it will only be in hindsight, McBride said. “Typically, by the time a recession is declared, the recovery is underway.”

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August 16, 2023
Here’s the inflation breakdown for July, in one chart

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D3sign | Moment | Getty Images

Annual inflation rose slower than expected in July, a welcome sign for consumers who have been grappling with high costs. But many Americans are still feeling the sting of essential expenses like shelter and energy.

The consumer price index rose 0.2% for the month and 3.2% from one year ago, according to the U.S. Bureau of Labor Statistics. While the annual rate for inflation was below expectations, it marked an increase from 3% in June.

July’s CPI report was “better than we were expecting,” said Eugenio Aleman, chief economist at Raymond James. But the biggest issue is “shelter costs continue to remain strong.”

The CPI is a key gauge of inflation, measuring the average price changes over time for goods and services. While July’s annual inflation was higher than June, it’s still a sizable drop from the 8.5% reading one year ago.

Nearly all of the monthly inflation increase came from shelter costs, which increased by 0.4% and were up 7.7% compared to one year ago. “We have been expecting shelter costs to start weakening considerably,” Aleman said. “But it hasn’t happened.”

Despite rising oil costs, energy prices increased just 0.1% in July and food increased 0.2%, according to the BLS. However, there was relief for used vehicle prices, which dropped by 1.3% and medical care services, which were down 0.4%. “That was very good news for consumers,” Aleman said.

‘Jumping oil prices’ is a threat to inflation target

“Inflation is moderating and headed in the right direction,” said Mark Zandi, chief economist at Moody’s Analytics. “It’s still too high for the Federal Reserve’s comfort, but quickly moving toward its target.”

The Fed approved another interest rate hike in July, still aiming for its 2% inflation target. But the central bank may be reaching the end of its rate-hiking cycle, some officials say.

“If everything roughly sticks to script, inflation will be back to the Fed’s target by this time next year,” Zandi said.

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He said the most serious and immediate threat is higher oil prices, which have increased over the past month or two. But with numerous “unpredictable geopolitical factors,” future oil prices can be difficult to predict, he said.

“Nothing is more vexing, more pernicious than jumping oil prices,” Zandi said.

With elevated oil prices, the next CPI report before the September Fed meeting “probably won’t look good unless shelter costs start plunging,” Aleman added.

Millions of households are ‘stretched financially’

Despite falling inflation, many Americans are still feeling the pinch of higher prices.

“It’s hit hardest and most consistently in categories that are necessities,” explained Greg McBride, chief financial analyst at Bankrate, noting that millions of U.S. households are still feeling “stretched financially.”

Some of the essential monthly expenses like shelter, electricity and motor vehicle costs continue to strain budgets, he said.

It’s hit hardest and most consistently in categories that are necessities.

Greg McBride

Chief financial analyst at Bankrate

“There really hasn’t been anywhere to hide,” McBride added.

As a result, savings balances have declined and credit card balances are up, he said — which has become harder to pay off amid rising interest rates. Indeed, aggregate credit card balances surpassed $1 trillion for the first time in history, the New York Federal Reserve reported on Tuesday.

However, the strong labor market could offer a chance for a side job to improve the household budget and start paying off debt, McBride said.

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August 10, 2023
The U.S. Federal Reserve isn’t trying to get ahead of itself anymore, KPMG says

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Diane Swonk, chief economist at KPMG, says there’s unlikely to be another “mic drop” moment — like U.S. Federal Reserve Chair Jerome Powell’s 8-minute speech last year — at the next Jackson Hole meeting.

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July 26, 2023
Here’s what the Federal Reserve’s 25 basis point interest rate hike means for your money

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The Federal Reserve raised the target federal funds rate by a quarter of a point Wednesday, in its continued effort to tame inflation.

In a move that financial markets had completely priced in, the central bank’s Federal Open Market Committee raised the funds rate to a target range of 5.25% to 5.5%. The midpoint of that target range would be the highest level for the benchmark rate since early 2001.

After holding rates steady at the last meeting, the central bank indicated that the fight to bring down price increases is not over despite recent signs that inflationary pressures are cooling.

More from Your Money:

Here’s a look at more stories on how to manage, grow and protect your money for the years ahead.

For now, inflation remains above the Fed’s 2% target; however, “it’s entirely possible that this could be the last hike in the cycle,” said Columbia Business School economics professor Brett House.

What the federal funds rate means to you

The federal funds rate, which is set by the U.S. central bank, is the interest rate at which banks borrow and lend to one another overnight. Although that’s not the rate consumers pay, the Fed’s moves affect the borrowing and saving rates consumers see every day.

This hike — now the 11th interest rate increase since March 2022 — will correspond with a rise in the prime rate and immediately send financing costs higher for many forms of consumer borrowing, putting more pressure on households in hopes of sidestepping a possible recession.

“The pain that the rate hike has caused for a lot of people isn’t gratuitous,” House said. “Ultimately, this is a trade off in choices between pain now and greater pain later if inflation isn’t brought under control.”

How higher interest rates can affect your money

1. Credit card rates are at record highs

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Since most credit cards have a variable rate, there’s a direct connection to the Fed’s benchmark. As the federal funds rate rises, the prime rate does, as well, and credit card rates follow suit within one or two billing cycles.

The average credit card rate is now more than 20% — an all-time high, while balances are higher and nearly half of credit card holders carry credit card debt from month to month, according to a Bankrate report.

Altogether, this rate hike will cost credit card users at least an additional $1.72 billion in interest charges over the next 12 months, according to an analysis by WalletHub.

“It’s still a tremendous opportunity to grab a zero percent balance transfer card,” said Greg McBride, Bankrate’s chief financial analyst. “Those offers are still out there and if you have credit card debt, that is your first step to give yourself a tailwind on a path to debt repayment.”

2. Mortgage rates will stay high

Because 15- and 30-year mortgage rates are fixed and tied to Treasury yields and the economy, homeowners won’t be affected immediately by a rate hike. However, anyone shopping for a new home has lost considerable purchasing power, partly because of inflation and the Fed’s policy moves.

The average rate for a 30-year, fixed-rate mortgage currently sits near 7%, according to Freddie Mac.

Since the coming rate hike is largely baked into mortgage rates, homebuyers are going to pay roughly $11,160 more over the life of the loan, assuming a 30-year fixed rate, according to WalletHub’s analysis.

Other home loans are more closely tied to the Fed’s actions. Adjustable-rate mortgages, or ARMs, and home equity lines of credit, or HELOCs, are pegged to the prime rate. Most ARMs adjust once a year, but a HELOC adjusts right away. Already, the average rate for a HELOC is up to 8.58%, the highest in 22 years, according to Bankrate.

3. Car loans are getting more expensive

Even though auto loans are fixed, payments are getting bigger because the price for all cars is rising along with the interest rates on new loans. So if you are planning to buy a car, you’ll shell out more in the months ahead.

The average rate on a five-year new car loan is already at 7.2%, the highest in 15 years, according to Edmunds.

The double whammy of relentlessly high vehicle pricing and daunting borrowing costs is presenting significant challenges for shoppers.

Ivan Drury

director of insights at Edmunds

Paying an annual percentage rate of 7.2% instead of last year’s 5.2% could cost consumers $2,278 more in interest over the course of a $40,000, 72-month car loan, according to data from Edmunds.

“The double whammy of relentlessly high vehicle pricing and daunting borrowing costs is presenting significant challenges for shoppers in today’s car market,” said Ivan Drury, Edmunds’ director of insights.

4. Some student loans are pricier

Federal student loan rates are also fixed, so most borrowers aren’t immediately affected by the Fed’s moves. But as of July, undergraduate students who take out new direct federal student loans will pay an interest rate of 5.50%, up from 4.99% in the 2022-23 academic year.

For now, anyone with existing federal education debt will benefit from rates at 0% until student loan payments restart in October.

Private student loans tend to have a variable rate tied to the Libor, prime or Treasury bill rates — and that means that, as the Fed raises rates, those borrowers will also pay more in interest. But how much more will vary with the benchmark.

What savers should know about higher rates

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The good news is that interest rates on savings accounts are also higher.

While the Fed has no direct influence on deposit rates, they tend to be correlated to changes in the target federal funds rate. The savings account rates at some of the largest retail banks, which have been near rock bottom during most of the Covid pandemic, are currently up to 0.42%, on average.

Thanks, in part, to lower overhead expenses, top-yielding online savings account rates are now at more than 5%, the highest since 2008′s financial crisis, with some short-term certificates of deposit even higher, according to Bankrate.

However, if this is the Fed’s last increase for a while, “you could see yields start to slip,” McBride said. “Now’s a good time to be locking that in.”

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July 26, 2023
St. Louis Fed president Jim Bullard, one of the central bank’s most hawkish members, stepping down

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St. Louis Federal Reserve Bank President James Bullard, one of the most hawkish members of the central bank since it started it aggressive rate-hiking campaign, is stepping down.

Bullard is leaving his position as president and CEO of the St. Louis Fed to become the inaugural dean of the Mitchell E. Daniels Jr. School of Business at Purdue University next month, the bank announced Thursday.

While he’ll be available in an “advisory capacity” to the Fed until Aug. 14, Bullard has recused himself from his role on the central bank’s committee that determines the direction of interest rates and other monetary policy.

Illinois State Police say a Greyhound passenger bus crashed into three tractor-trailers parked along a highway rest area exit in southern Illinois, killing three people and injuring 14 others, some seriously.

The St. Louis region has been struggling with nuclear waste since uranium was first processed at a plant near downtown starting in the early 1940s.

Newly public documents are showing how America’s push for the atomic bomb helped saddle St. Louis with an enduring radioactive waste problem. St.

Fifty years ago, millions of files were destroyed in a huge fire at the Military Personnel Records Center in suburban St. Louis.

“It has been both a privilege and an honor to be part of the St. Louis Fed for the last 33 years, including serving as its president for the last 15 years,” Bullard said in a statement. “This is an outstanding organization with staff in every area of the Bank bringing their passion, integrity and a deep sense of purpose to our mission of promoting a healthy economy and financial stability.”

Bullard has been among the Fed policymakers who’ve taken an aggressive stance toward interest rate increases as the central bank took on the task of reducing the hottest inflation in four decades.

Beginning with its first hike in March 2022, the Fed lifted its benchmark interest rate to about 5.1%, its highest level in 16 years, before forgoing a hike at its meeting of policymakers last month.

On Wednesday, the U.S. government reported that inflation at the consumer level rose 3% in June from a year earlier, marking its lowest point since early 2021, though it remains above the Fed’s 2% target.

Kathleen O’Neill Paese, vice president and chief operating officer of the St. Louis Fed, has taken over Bullard’s post on an interim basis while the bank’s board searches for a permanent successor.

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July 14, 2023
US inflation hits its lowest point since early 2021 as prices ease for gas, groceries and used cars

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WASHINGTON (AP) — Squeezed by painfully high prices for two years, Americans have gained some much-needed relief with inflation reaching its lowest point since early 2021 — 3% in June compared with a year earlier — thanks in part to easing prices for gasoline, airline fares, used cars and groceries.

The inflation figure the government reported Wednesday was down sharply from a 4% annual rate in May, though still above the Federal Reserve’s 2% target. From May to June, overall prices rose 0.2%, up from just 0.1% in the previous month but still comparatively mild.

Even with Wednesday’s better-than-expected inflation data, the Fed is considered all but sure to raise its benchmark rate when it meets in two weeks. But with price increases slowing — or even falling outright — across a range of goods and services, many economists say they think the central bank could hold off on what had been expected to be another rate hike in September, should inflation continue to cool.

“It takes the second hike off the table, if that trend continues,” said Laura Rosner-Warburton, senior economist at MacroPolicy Perspectives. “They’re probably on hold for the rest of the year.”

On Wall Street, investors cheered the encouraging news, sending stock and bond prices higher. Investors have been eagerly anticipating the eventual end of the central bank’s rate increases.

The Fed has raised its benchmark rate by a substantial 5 percentage points since March 2022, the steepest pace of increases in four decades. Its expected hike this month will follow the central bank’s decision to pause its rate increases last month after 10 consecutive hikes.

Wednesday’s inflation data may lift hopes that the Fed will achieve a difficult “soft landing,” in which price increases fall back to 2% without causing a spike in unemployment or a deep recession. Last week, the government reported solid hiring in June, though it slowed compared with earlier this year. The unemployment rate ticked lower, from 3.7% to 3.6%, near a half-century low.

When the Fed began raising its key rate a year ago, many economists expected that unemployment would have to rise significantly to curb inflation. Though inflation isn’t yet fully tamed, some economists say they think it can fall to a level near the Fed’s 2% target earlier than they had expected.

Excluding the volatile food and energy prices, so-called core inflation was lower last month than economists had expected, rising just 0.2% from May to June, the smallest monthly increase in nearly two years. Compared with a year ago, core inflation does remain relatively high, at 4.8%, but down from a 5.3% annual rate in May.

In just the past two months, overall inflation, measured year over year, has slowed from nearly 5% in April to just 3% now. Much of that progress reflects the fading of spikes in food and energy prices that followed Russia’s invasion of Ukraine last spring. Inflation is now significantly below its peak of 9.1% in June 2022.

Gas prices have fallen to about $3.54 a gallon on average, nationally, down from a $5 peak last year. Grocery prices have leveled off in the past three months and were unchanged from May to June. Milk prices, having dropped for a third straight month, are down 1.9% from last year.

Eggs, which had skyrocketed last year after an outbreak of avian flu decimated chicken flocks, have dropped to $2.22 a dozen — down more than 7% just in the past month. Egg prices had peaked at $4.82 in January, according to government data. Still, they remain above the average pre-pandemic price of about $1.60 a dozen.

Economists say inflation isn’t likely to keep falling at such a rapid pace. On a 12-month basis, inflation could even tick up in the coming months now that big drops in gas prices — they’re down 27% in the past year — have been achieved..

In particular, airfares plunged 8.1% just from May to June, hotel costs 2% and car rental prices 1.4% — sharp drops that aren’t likely to be replicated.

And the cost of some services are still rising and likely to stay high this year, potentially keeping core prices elevated. Auto insurance costs, for instance, have soared, and are up 16.9% from a year ago. Americans are driving more than during the pandemic and causing more accidents. Insurance is also costlier because vehicle prices are much higher than before the pandemic, and cars are therefore more valuable.

Restaurant prices are still moving up, having risen 0.4% from May to June and nearly 8% from a year earlier. Restaurant owners have had to keep raising wages to find and retain workers, and many of them are passing their higher labor costs on to their customers by raising prices.

Chrishon Lampley, owner of the wine brand Love Cork Screw, says more expensive restaurant prices have led her to cut back on taking prospective customers out for meals. Instead, she gives potential wine buyers small gifts.

The cost of printing labels for her wine bottles has nearly doubled in the past year, Lampley said, mostly because of higher labor costs. She’s reduced her travel costs as a result. Lampley now chooses extended-stay hotels with kitchens rather than regular hotels, and she rents smaller cars even though she often carts around cases of wine.

“Everything has just become way more frugal,” she said. “I’ve got to pull back.”

Chair Jerome Powell and other Fed officials have focused their attention, in particular, on chronically high inflation for restaurant meals, auto insurance and other items in the economy’s sprawling service sector. It’s a big reason why several Fed policymakers were still talking earlier this week about the likelihood of two more rate hikes.

“We’re likely to need a couple more rate hikes over the course of this year to really bring inflation back into … a sustainable 2% path,” Mary Daly, president of the Federal Reserve Bank of San Francisco, said on Monday.

At the same time, Daly said she was “holding myself to … extreme data dependence” and could shift her thinking based on incoming reports. There will be two more inflation reports — for July and August — before the Fed meets in September.

Some drivers of higher prices are likely to keep fading and pull down inflation in the coming months. Used car prices sank 0.5% from May to June, after two months of big spikes. New-car prices, too, have begun to ease as a result, and were unchanged from May to June.

In June, used vehicle prices paid by dealers were down 5.6% from a year earlier, helping to cool inflation, according to data gathered by Black Book, which monitors prices. But used vehicles are still comparatively pricey: Dealers are paying almost 70% more for them than in June 2019, before the pandemic began. The average list price offered by dealers to consumers was $28,850 last month.

Alex Yurchenko, chief data officer for Black Book, said he expects prices paid by consumers to keep falling through year’s end, contributing to declining inflation. But they aren’t expected to drop dramatically. Typically, prices fall in the second half of the year, then rise in the spring as the car-buying season begins.

“We expect a return to some kind of normality,” Yurchenko said.

Supplies of new vehicles are rising, and prices are dropping slightly. As a global shortage of computer chips wanes, automakers have accelerated production. New-vehicle prices peaked in December but fell 3% to $45,978 last month, according to estimates from J.D. Power.

And rental costs, a huge driver of inflation, are expected to keep declining, as builders continue to complete the most new apartment units in decades. Rising housing costs have driven more than two-thirds of the increase in core inflation in the past year, the government said, so as that increase fade it should steadily lower overall inflation.

Prices first spiked two years ago as consumers ramped up their spending on items like exercise bikes, standing desks and new patio furniture, fueled by three rounds of stimulus checks. The jump in consumer demand overwhelmed supply chains and ignited inflation.

Many economists have suggested that President Joe Biden’s stimulus package in March 2021 intensified the inflation surge. At the same time, though, inflation also jumped overseas, even in countries where much less stimulus was put in place.

___

AP Auto Writer Tom Krisher contributed to this report from Detroit.

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July 12, 2023
House Democrats release wave of bank reform bills

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WASHINGTON — House Democrats on Wednesday will release a slate of reform bills in response to the recent bank failures that triggered the worst crisis for the sector since 2008.

Members of the House Financial Services Committee, led by ranking member Rep. Maxine Waters, D-Calif., are seeking an expansion to federal regulatory authorities and more oversight for bank executives, including clawbacks on compensation, fines and the closure of loopholes that allowed some banks to escape standards established under the 2010 Dodd-Frank Act.

The committee has closely scrutinized the actions of the Treasury Department, the Federal Deposit Insurance Corporation, or FDIC, and other federal regulators along with executives of Silicon Valley Bank and Signature Bank leading up to and in the aftermath of the banks’ collapse.

Waters urged committee Republicans to follow the lead of the Senate Banking Committee and work with Democrats to advance bipartisan legislation to protect the economy from future harm.

“The failures of Silicon Valley Bank, Signature Bank, and First Republic Bank make clear that it is past time for legislation aimed at strengthening the safety and soundness of our banking system and enhancing bank executive accountability,” she said.

Here are the bills to be considered:

Failed Bank Executives Accountability and Consequences Act: This bill would expand regulatory authority on compensation clawbacks, fines and banning executives who contribute to a bank’s failure from future work in the industry. President Joe Biden called for these actions shortly after the FDIC took over SVB and Signature Bank in March. The bill is cosponsored by Waters and fellow Democratic Reps. Nydia Velazquez, of New York; Brad Sherman and Juan Vargas, both of California; David Scott, of Georgia; Al Green and Sylvia Garcia of Texas; Emanuel Cleaver, of Missouri; Joyce Beatty and Steven Horsford, both of Ohio; and Rashida Tlaib, of Michigan. Some Republicans have expressed support for this act, which is similar to the bipartisan bill the Senate Banking Committee is considering.

Incentivizing Safe and Sound Banking Act: This measure would expand regulators’ authority to prohibit stock sales for executives when banks are issued cease-and-desist orders for violating the law. It would also automatically restrict stock sales by senior executives of banks that receive poor exam ratings or are out of compliance with supervisory citations. The bill would have prevented SVB bank executives from cashing out after repeated warnings by regulators, according to Democrats. It is cosponsored by Waters, Velazquez, Sherman, Green, Cleaver, Beatty, Horsford and Tlaib.

Closing the Enhanced Prudential Standards Loophole Act: This will aim to close loopholes surrounding the Dodd-Frank Act’s enhanced prudential standards for banks that do not have a bank holding company. Neither Signature Bank nor SVB had a bank holding company before they collapsed. The bill would ensure that large banks with a size, complexity and risk equal to that of big banks with holding companies will be subject to similar enhanced capital, liquidity, stress testing, resolution planning and other related requirements. It is cosponsored by Waters, Velazquez, Sherman, Green, Cleaver, Beatty, Vargas, Garcia and Tlaib.

H.R. 4204, Shielding Community Banks from Systemic Risk Assessments Act: This measure would permanently exempt banks with less than $5 billion in total assets from special assessments the FDIC collects when a systemic risk exception is triggered, which was done to protect depositors at Silicon Valley Bank and Signature Bank. The FDIC would be allowed to set a higher threshold while requiring a minimal impact on banks with between $5 billion and $50 billion in total assets. It is sponsored by Green.

H.R. 4062, Chief Risk Officer Enforcement and Accountability Act: This measure would have federal regulators require large banks to have a chief risk officer. Banks would also have to notify federal and state regulators of a CRO vacancy within 24 hours and provide a hiring plan within seven days. After 60 days, if the CRO position remains vacant, the bank must notify the public and be subject to an automatic cap on asset growth until the job is filled. The bill is cosponsored by Sherman, Green, and fellow Democratic Reps. Sean Casten, of Illinois; Josh Gottheimer, of New Jersey; Ritchie Torres, of New York; and Wiley Nickel, of North Carolina.

H.R. 3914, Failing Bank Acquisition Fairness Act: This bill would have the FDIC only consider bids from megabanks with more than 10% of total deposits if no other institutions meet the least-cost test. This would ensure smaller banks have a chance to purchase failed banks, according to Democrats. It is sponsored by Rep. Stephen Lynch, D-Mass.

H.R. 3992, Effective Bank Regulation Act: This legislation would require regulators to expand stress testing requirements. Instead of two stress test scenarios, the bill would require five. It would also ensure that the Federal Reserve does stress tests for situations when interest rates are rising or falling. It is sponsored by Sherman.

H.R. 4116, Systemic Risk Authority Transparency Act: This bill would require regulators and the watchdog Government Accountability Office, or GAO, to produce the same kind of post-failure reports that the Federal Reserve, FDIC and GAO did after Silicon Valley Bank’s and Signature Bank’s failure. Initial reports would be required within 60 days and comprehensive reports within 180 days. It would be applicable to any use of the systemic risk exception of the FDIC’s least cost resolution test. The bill is sponsored by Green.

H.R. 4200, Fostering Accountability in Remuneration Fund Act of 2023, or FAIR Fund Act: The legislation would require big financial institutions to cover fines incurred after a failure and/or executive conduct through a deferred compensation pool that would be funded with a portion of senior executive compensation. The pool would get paid out between two and eight years, depending on the size of the institution. The bill is sponsored by Tlaib.

Stopping Bonuses for Unsafe and Unsound Banking Act: This measure would freeze bonuses for executives of any large bank that doesn’t submit an acceptable remediation plan for what’s known as a Matter Requiring Immediate Attention, or MRIA, or a similar citation from bank supervisors by a regulator-set deadline. It is sponsored by Brittany Pettersen, D-Colo.

Bank Safety Act: Large banks would be prevented from opting out of the requirement to recognize Accumulated Other Comprehensive Income, or AOCI, in regulatory capital under this bill. AOCI reflects the kind of unrealized losses in SVB’s securities portfolio. It is sponsored by Sherman.

Correction: This story was updated to reflect that the bills are being released Wednesday.

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June 21, 2023
Rate cuts, hikes and pauses: The world’s central banks just made very different decisions

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Dollar, yuan, yen and euro notes.

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From hawkish pauses to rate hikes and dovish tones, the world’s biggest central banks last week struck very different tones on monetary policy.

The European Central Bank on Thursday hiked rates and surprised markets with a worsening inflation outlook, which led investors to price in even more rate increases in the euro zone.

This followed a Federal Reserve meeting where the central bank decided to pause rate hikes. Just days before that, China’s central bank lowered its key medium-term lending rates to stimulate the economy. In Japan, where inflation is above target, the central bank has left its ultra-loose policy unchanged.

“Taking all these different approaches together shows that not only seems there to be a new divergence on the right approach for monetary policy but it also illustrates that the global economy is no longer synchronized but rather a collection of very different cycles,” Carsten Brzeski, global head of macro at ING Germany, told CNBC via email.

In Europe, inflation has come down in the bloc which uses the euro but remains well above the ECB target. This is also the case in the U.K., where the Bank of England is expected to raise rates Thursday after very strong labor data.

The Fed, which started its hiking cycle before the ECB, decided to take a break in June — but said there would be another two rate increases later this year, meaning its hiking cycle is not yet complete.

The picture is different in Asia, however. China’s economic recovery is stalling, with falls in both domestic and external demand leading policymakers to step up support measures in an effort to revive activity.

In Japan — which has battled a deflationary environment for many years — the central bank said it expects inflation to come down later this year and opted not to normalize policy yet.

“Each central bank [tries] to solve for its own economy, which obviously includes considerations for changes in financial conditions imposed from abroad,” Erik Nielsen, group chief economics advisor at UniCredit said via email.

Market impact

The euro rose to a 15-year high against the Japanese yen on Friday, according to Reuters, off the back of the divergent monetary policy decisions. The euro also broke above the $1.09 threshold as investors digested the ECB’s hawkish tone last Thursday.

In bond markets, the yield on the German 2-year bond hit a fresh 3-month higher Friday, given expectations that the ECB will continue with its approach in the short term.

“Makes sense we start seeing this divergence. In the past, it was clear there was a lot of room to cover for pretty much all the major central banks, while now, given the different stages the jurisdictions are in the cycle, there will be more nuanced decisions to be made,” Konstantin Veit, portfolio manager at PIMCO, told CNBC’s Street Signs Europe on Friday.

“This indeed will create opportunities for the investors.”

ECB President Christine Lagarde was asked during a press conference to compare her team’s decision to increase rates, versus the Federal Reserve’s decision to pause.

“We are not thinking about pausing,” she said. “Are we done? Have we finished the journey? No, we are not at [the] destination,” she said, pointing to at least another potential rate hike in July.

For some economists, it is only a matter of time before the ECB finds itself in a similar position to that of the Fed.

“The Fed is leading the ECB [as] the U.S. economy is leading the eurozone economy by a few quarters. This means that, at the latest after the September meeting, the ECB will also be confronted with the debate on whether or not to pause,” Brzeski said.

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June 19, 2023
Here’s how the Federal Reserve’s pause in interest rate hikes affects your money

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After more than a year of steady rate hikes, the Federal Reserve held its target federal funds rate steady Wednesday.

For households, however, that offers little relief from record-high borrowing costs.

“It’s not like rates will go down,” said Tomas Philipson, University of Chicago economist and a former chair of the White House Council of Economic Advisers.

In fact, borrowing costs are likely to climb higher in the second half of the year: Fed officials projected another two quarter percentage point moves are on the way before the end of 2023.

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Since March 2022, the central bank has hiked its benchmark rate 10 consecutive times to a targeted range of 5%-5.25%, the fastest pace of tightening since the early 1980s. Inflation has started to cool but still remains well above the Fed’s 2% target.

At the same time, borrowers are paying more on credit cards, student loans and other types of debt.

What the federal funds rate means for you

Wage growth hasn’t been able to keep pace with higher prices for many Americans. As a result, most households are getting squeezed and are going into debt just when borrowing rates reach record highs, Philipson said.

“They are getting hammered,” he added.

The exterior of the Marriner S. Eccles Federal Reserve Board Building is seen in Washington, D.C., June 14, 2022.

Sarah Silbiger | Reuters

The federal funds rate, which is set by the central bank, is the interest rate at which banks borrow and lend to one another overnight.

Although that’s not the rate consumers pay, the Fed’s moves still affect the borrowing and savings rates they see every day. The Fed’s current benchmark rate is at its highest since August 2007.

Here’s a breakdown of how that affects consumers:

Credit cards

Since most credit cards have a variable rate, there’s a direct connection to the Fed’s benchmark. As the federal funds rate rose, the prime rate did, as well, and credit card rates followed suit.

Credit card annual percentage rates are now more than 20%, on average — an all-time high. Further, with most people feeling strained by higher prices, more cardholders carry debt from month to month.

Today’s credit card rates are likely as high as they’ve been in decades.

Matt Schulz

chief credit analyst at LendingTree

For those who carry a balance, there’s not much relief in sight, according to Matt Schulz, chief credit analyst at LendingTree.

“The truth is that today’s credit card rates are likely as high as they’ve been in decades, and they’re probably going to still creep higher in the immediate future, even though the Fed chose not to raise rates this month,” he said.

Home loans

Although 15-year and 30-year mortgage rates are fixed, and tied to Treasury yields and the economy, anyone shopping for a new home has lost considerable purchasing power, partly because of inflation and the Fed’s policy moves.

Rates are now off their recent peak but not by much. The average rate for a 30-year, fixed-rate mortgage currently sits near 6.7%, according to Freddie Mac, down slightly from October’s high but still well above a year ago.

“Mortgage rates decreased after a three-week climb,” said Sam Khater, Freddie Mac’s chief economist. “While elevated rates and other affordability challenges remain, inventory continues to be the biggest obstacle for prospective homebuyers.”

Other home loans are more closely tied to the Fed’s actions. Adjustable-rate mortgages, or ARMs, and home equity lines of credit, or HELOCs, are pegged to the prime rate. Most ARMs adjust once a year after an initial fixed-rate period. But a HELOC rate adjusts right away. And already, the average rate for a HELOC is up to 8.3%, the highest in 22 years, according to Bankrate.

Auto loans

Even though auto loans are fixed, payments are getting bigger because the prices for all cars are rising along with the interest rates on new loans. So if you are planning to buy a car, you’ll still shell out more in the months ahead.

The average rate on a five-year new car loan is now 6.87%, the highest since 2010, according to Bankrate.

Keeping up with the higher cost has become a challenge, research shows, with more borrowers falling behind on their monthly loan payments.

Student loans

Darren415 | Istock | Getty Images

Federal student loan rates are also fixed, so most borrowers aren’t immediately affected by the Fed’s moves. But as of July, undergraduate students who take out new direct federal student loans will see interest rates rise to 5.50% — up from 4.99% in the 2022-23 academic year and 3.73% in 2021-22.

For now, anyone with existing federal education debt will benefit from rates at 0% until the payment pause ends, which the U.S. Department of Education expects could happen in the fall.

Private student loans tend to have a variable rate tied to the Libor, prime or Treasury bill rates — and that means that those borrowers are already paying more in interest. How much more, however, varies with the benchmark.

Savings accounts

While the Fed has no direct influence on deposit rates, the yields tend to be correlated to changes in the target federal funds rate. The savings account rates at some of the largest retail banks, which were near rock bottom during most of the Covid pandemic, are currently up to 0.4%, on average.

Thanks, in part, to lower overhead expenses, top-yielding online savings account rates are now over 5%, the highest since 2008′s financial crisis, according to Bankrate.

Since the Fed skipped a rate hike at this meeting, those deposit rate increases are likely to slow, according to Ken Tumin, founder of DepositAccounts.com.

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June 14, 2023
JPMorgan bond chief Bob Michele sees worrying echoes of 2008 in market calm

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Bob Michele, Managing Director, is the Chief Investment Officer and Head of the Global Fixed Income, Currency & Commodities (GFICC) group at JPMorgan.

CNBC

To at least one market veteran, the stock market’s resurgence after a string of bank failures and rapid interest rate hikes means only one thing: Watch out.

The current period reminds Bob Michele, chief investment officer for JPMorgan Chase‘s massive asset management arm, of a deceptive lull during the 2008 financial crisis, he said in an interview at the bank’s New York headquarters.

“This does remind me an awful lot of that March-to-June period in 2008,” said Michele, rattling off the parallels.

Then, as now, investors were concerned about the stability of U.S. banks. In both cases, Michele’s employer calmed frayed nerves by swooping in to acquire a troubled competitor. Last month, JPMorgan bought failed regional player First Republic; in March 2008, JPMorgan took over the investment bank Bear Stearns.

“The markets viewed it as, there was a crisis, there was a policy response and the crisis is solved,” he said. “Then you had a steady three-month rally in equity markets.”

The end to a nearly 15-year period of cheap money and low interest rates around the world has vexed investors and market observers alike. Top Wall Street executives, including Michele’s boss Jamie Dimon, have raised alarms about the economy for more than a year. Higher rates, the reversal of the Federal Reserve’s bond-buying programs and overseas strife made for a potentially dangerous combination, Dimon and others have said.

But the American economy has remained surprisingly resilient, as May payroll figures surged more than expected and rising stocks caused some to call the start of a fresh bull market. The crosscurrents have divided the investing world into roughly two camps: Those who see a soft landing for the world’s biggest economy and those who envision something far worse.

Calm before the storm

For Michele, who began his career four decades ago, the signs are clear: The next few months are merely a calm before the storm. Michele oversees more than $700 billion in assets for JPMorgan and is also global head of fixed income for the bank’s asset management arm.

In previous rate-hiking cycles going back to 1980, recessions start an average of 13 months after the Fed’s final rate increase, he said. The central bank’s most recent move happened in May.

In that ambiguous period just after the Fed has finished raising rates, “you’re not in a recession; it looks like a soft landing” because the economy is still growing, Michele said.

“But it would be a miracle if this ended without recession,” he added.

The economy will probably tip into recession by the end of the year, Michele said. While the downturn’s start could get pushed back, thanks to the lingering effects of Covid stimulus funds, he said the destination is clear.

“I’m highly confident that we’re going to be in recession a year from now,” he said.

Rate shock

Other market watchers do not share Michele’s view.

BlackRock bond chief Rick Rieder said last month that the economy is in “much better shape” than the consensus view and could avoid a deep recession. Goldman Sachs economist Jan Hatzius recently dialed down the probability of a recession within a year to just 25%. Even among those who see recession ahead, few think it will be as severe as the 2008 downturn.

To start his argument that a recession is coming, Michele points out that the Fed’s moves since March 2022 are its most aggressive series of rate increases in four decades. The cycle coincides with the central bank’s steps to rein in market liquidity through a process known as quantitative tightening. By allowing its bonds to mature without reinvesting the proceeds, the Fed hopes to shrink its balance sheet by up to $95 billion a month.

“We’re seeing things that you only see in recession or where you wind up in recession,” he said, starting with the roughly 500-basis point “rate shock” in the past year.

Other signs pointing to an economic slowdown include tightening credit, according to loan officer surveys; rising unemployment filings, shortening vendor delivery times, the inverted yield curve and falling commodities values, Michele said.

Pain trade

The pain is likely to be greatest, he said, in three areas of the economy: regional banks, commercial real estate and junk-rated corporate borrowers. Michele said he believes a reckoning is likely for each.

Regional banks still face pressure because of investment losses tied to higher interest rates and are reliant on government programs to help meet deposit outflows, he noted.

“I don’t think it’s been fully solved yet; I think it’s been stabilized by government support,” he said.

Downtown office space in many cities is “almost a wasteland” of unoccupied buildings, he said. Property owners faced with refinancing debt at far higher interest rates may simply walk away from their loans, as some have already done. Those defaults will hit regional bank portfolios and real estate investment trusts, he said.

A woman wearing her facemask walks past advertising for office and retail space available in downtown Los Angeles, California on May 4, 2020.

Frederic J. Brown | AFP | Getty Images

“There are a lot of things that resonate with 2008,” including overvalued real estate, he said. “Yet until it happened, it was largely dismissed.”

Last, he said below investment grade-rated companies that have enjoyed relatively cheap borrowing costs now face a far different funding environment; those that need to refinance floating-rate loans may hit a wall.

“There are a lot of companies sitting on very low-cost funding; when they go to refinance, it will double, triple or they won’t be able to and they’ll have to go through some sort of restructuring or default,” he said.

Ribbing Rieder

Given his worldview, Michele said he is conservative with his investments, which include investment grade corporate credit and securitized mortgages.

“Everything we own in our portfolios, we’re stressing for a couple quarters of -3% to -5% real GDP,” he said.

That contrasts JPMorgan with other market participants, including his counterpart Rieder of BlackRock, the world’s biggest asset manager.

“Some of the difference with some of our competitors is they feel more comfortable with credit, so they are willing to add lower-rate credits believing that they’ll be fine in a soft landing,” he said.

Despite gently ribbing his competitor, Michele said he and Rieder were “very friendly” and have known each other for three decades, dating to when Michele was at BlackRock and Rieder was at Lehman Brothers. Rieder recently teased Michele about a JPMorgan dictate that executives had to work from offices five days a week, Michele said.

Now, the economy’s path could write the latest chapter in their low-key rivalry, leaving one of the bond titans to look like the more astute investor.

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June 9, 2023
The Federal Reserve may pause its interest rate hiking campaign. What that means for you

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The Federal Reserve is likely to temporarily pause its aggressive interest rate hikes when it meets next week, experts predict. But consumers may not see any relief.

The central bank has raised interest rates 10 times since last year — the fastest pace of tightening since the early 1980s — only to see inflation stay well above its 2% target.

“We are living in uncharted territory,” said Charlie Wise, senior vice president and head of global research and consulting at TransUnion. “The combination of rising interest rates and elevated inflation, while not uncommon from a historical perspective, is an unfamiliar experience for many consumers.”

“A pause is not going to make things better,” he added.

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Although the Fed’s rate-hiking cycle has started to cool inflation, higher prices have caused real wages to decline. That’s squeezed household budgets, pushing more people into debt just when borrowing rates reach record highs.

Even with a pause, “interest rates are the highest they’ve been in years, borrowing costs have gone up dramatically and that isn’t going to change,” said Greg McBride, chief financial analyst at Bankrate.com.

Here’s a breakdown of how the benchmark rate has already impacted the rates consumers pay:

Credit card rates top 20%

The federal funds rate, which is set by the U.S. central bank, is the interest rate at which banks borrow and lend to one another overnight. Although that’s not the rate consumers pay, the Fed’s moves still affect the borrowing and savings rates they see every day.

For starters, most credit cards come with a variable rate, which has a direct connection to the Fed’s benchmark rate.

After the previous rate hikes, the average credit card rate is now more than 20% — an all-time high, while balances are higher and nearly half of credit card holders carry the debt from month to month, according to a Bankrate report.

Mortgage rates are near 7%

Although 15-year and 30-year mortgage rates are fixed, and tied to Treasury yields and the economy, anyone shopping for a new home has lost considerable purchasing power, partly because of inflation and the Fed’s policy moves.

The average rate for a 30-year, fixed-rate mortgage currently sits at 6.9%, according to Bankrate, up from 5.27% one year ago and only slightly below October’s high of 7.12%.

Adjustable-rate mortgages, or ARMs, and home equity lines of credit, or HELOCs, are pegged to the prime rate. As the federal funds rate rose, the prime rate did, as well, and these rates followed suit.

Now, the average rate for a HELOC is up to 8.3%, the highest in 22 years, according to Bankrate. “While typically thought of as a low-cost way to borrow, it no longer is,” McBride said.

Auto loan rates are close to 7%

Even though auto loans are fixed, payments are getting bigger because the price for all cars is rising along with the interest rates on new loans.

The average rate on a five-year new car loan is now 6.87%, the highest since 2010, according to Bankrate.

Keeping up with the higher cost has become a challenge, research shows, with more borrowers falling behind on their monthly loan payments.

Federal student loans are set to rise to 5.5%

Federal student loan rates are also fixed, so most borrowers aren’t immediately affected by the Fed’s moves. But as of July, undergraduate students who take out new direct federal student loans will see interest rates rise to 5.50% — up from 4.99% in the 2022-23 academic year and 3.73% in 2021-22.

For now, anyone with existing federal education debt will benefit from rates at 0% until the payment pause ends, which the U.S. Department of Education expects could happen in the fall.

Private student loans tend to have a variable rate tied to the Libor, prime or Treasury bill rates — and that means that those borrowers are already paying more in interest. How much more, however, varies with the benchmark.

Deposit rates at some banks are up to 5%

While the Fed has no direct influence on deposit rates, the yields tend to be correlated to changes in the target federal funds rate. The savings account rates at some of the largest retail banks, which were near rock bottom during most of the Covid pandemic, are currently up to 0.4%, on average.

Thanks, in part, to lower overhead expenses, top-yielding online savings account rates are now over 5%, the highest since 2008’s financial crisis, according to Bankrate.

However, if the Fed skips a rate hike at its June meeting, then those deposit rate increases are likely to slow, according to Ken Tumin, founder of DepositAccounts.com.

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June 9, 2023
Is it a ‘skip’ or a ‘pause’? Federal Reserve won’t likely raise rates next week but maybe next month

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WASHINGTON (AP) — Don’t call it a “pause.”

When the Federal Reserve meets next week, it is widely expected to leave interest rates alone — after 10 straight meetings in which it has jacked up its key rate to fight inflation.

But what might otherwise be seen as a “pause” will likely be characterized instead as a “skip.” The difference? A “pause” might suggest that the Fed may not raise its benchmark rate again. A “skip” implies that it probably will — just not now.

The purpose of suspending its rate hikes is to give the Fed’s policymakers time to look around and assess how much higher borrowing rates are slowing inflation. Calling next week’s decision a “skip” is also a way for Chair Jerome Powell to forge a consensus among an increasingly fractious committee of Fed policymakers.

One group of Fed officials would like to pause their hikes and decide, over time, whether to increase rates any further.

But a second group worries that inflation is still too high and would prefer that the Fed continue hiking at least once or twice more — beginning next week.

A “skip” serves as compromise.

When the Fed chair speaks at a news conference next Wednesday, he will likely make clear that the central bank’s key rate — which has elevated the costs of mortgages, auto loans, credit card and business borrowing — may eventually go even higher.

The clearest signal that a skip, rather than a pause, is in the works will likely be seen in the quarterly economic projections that policymakers will issue Wednesday. Those may show that officials expect their key rate to rise a quarter-point by year’s end — to about 5.4%, above their estimate in March.

“That’s probably the only way to keep the committee cohesive in an environment where they have seem to have somewhat broadening disagreements,” said Matthew Luzzetti, chief U.S. economist at Deutsche Bank Securities.

For more than a year, the Fed’s 18-member rate-setting committee has presented a united front: The officials were nearly unanimous in their support for rapid rate hikes to throttle a burst of inflation that had leapt to the highest level in four decades. (The committee has 19 members at full strength; one spot is now vacant.)

The Fed raised its rate by a substantial 5 percentage points in 14 months — the fastest pace of increases in 40 years, to a 16-year high. The policymakers hope that the resulting tighter credit will slow spending, cool the economy and curb inflation.

The rate increases have led to sharply higher mortgage rates, which have contributed to a steep fall in home sales. The average rate on a 30-year mortgage has nearly doubled, from 3.8% in March 2022 to 6.8% now. Compared with a year ago, sales of existing homes have tumbled by nearly a quarter.

Credit card rates have also climbed higher — topping 20% on average nationwide, up from 16.3% before the Fed’s rate hikes began. Many consumers have had to bear the weight of that costlier cost credit card debt.

Auto loans have grown more expensive, too. The average rate on a five-year loan has jumped from 4.5% early last year to 7.5% in the first three months of this year.

Several Fed officials contend that rates are already high enough to slow hiring and growth and that if they go much higher, they could cause a deep recession. This concern has left policymakers deeply divided about their next steps.

The camp that’s leaning against another rate increase is considered “dovish,” in Fed parlance. The doves, who include Powell and other top officials, think it takes a year or more for rate hikes to deliver their full effect and that the Fed should stop hiking, at least temporarily, to evaluate the impact so far.

The more dovish officials also worry that this spring’s banking turmoil, with three large banks collapsing in two months, might have compounded the brake on economic growth by causing other banks to restrict lending. Raising rates again too soon, they feel, could excessively weaken the economy.

The doves also think that pausing rate hikes to ensure that the Fed doesn’t go too far might help achieve the tantalizing prospect of a “soft landing.” This is the hoped-for scenario in which the Fed would manage to tame inflation without causing a recession, or at least not a very deep one.

“Maybe the majority of the tightening impact of what the Fed already did is still to come,” Austan Goolsbee, president of the Federal Reserve Bank of Chicago, said last month. “And then you add the bank stresses on top of it. … We have got to take that into account.”

Another group expresses a more “hawkish” view, meaning it favors further rate increases. Although food and gas prices have come down, overall inflation remains chronically high, hiring remains hot and consumers are still stepping up their spending — trends that could keep prices high.

And some of the reasons Fed officials had previously cited in support of a pause no longer pose a threat. Congress, for example, approved a suspension of the federal debt ceiling, thereby avoiding a U.S. default that could have caused a global economic meltdown.

“I don’t really see a compelling reason to pause — meaning wait until you get more evidence to decide what to do,” Loretta Mester, president of the Cleveland Fed, said last month in an interview with the Financial Times. “I would see more of a compelling case for bringing (rates) up.”

For now, the doves appear to have the upper hand. Powell signaled his support for a pause in carefully prepared remarks May 19.

“Given how far we’ve come, we can afford to look at the data and the evolving outlook and make careful assessments,” Powell said, referring to the Fed’s streak of rate hikes.

More recently, Philip Jefferson, whom President Joe Biden has nominated to serve as vice chair of the Fed, also expressed support for a pause in rate hikes while making clear that it was likely to be a skip.

“A decision to hold our rate constant at a coming meeting should not be interpreted to mean that we have reached the peak rate for this cycle,” Jefferson said in a speech. “Skipping a rate hike at a coming meeting would allow (the Fed’s policymakers) to see more data before making decisions” about interest rates.

In March, seven Fed officials indicated that they preferred to raise the Fed’s key rate to about 5.4% or higher by the end of 2023. If three more policymakers were to raise their projections next week to that level, that would be enough to boost the median estimate a quarter-point above where it is now.

If only two officials raise their forecasts for rate hikes, it would leave the committee evenly split over whether to hike again later this year. This could create a more muddled message about what comes next.

Still, any skip in rate hikes might not last long. There won’t be much major economic data released between next week’s Fed meeting and the next one in July — just one more jobs report and one more inflation report.

As a result, inflation will likely still remain high, according to the most recent data, when the Fed meets in July, with hiring still strong. The hawks may well prevail at that session and win another rate hike.

A report on inflation in May will be issued on Tuesday, the first day of the Fed’s two-day meeting. But most economists think the officials will largely have their rate decision in mind by then. So the inflation report for May will likely have more influence on what happens at the following Fed meeting in July.

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June 7, 2023
There probably won’t be any rate decreases from the Fed this year, BNP Paribas says

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George Sun of the investment bank says, however, that "all bets are off" if there are problems in regional banks and credit conditions worsen.

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May 15, 2023
Biden taps Philip Jefferson to be Fed’s vice chair, Adriana Kugler as first Hispanic on Fed board

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WASHINGTON (AP) — President Joe Biden has nominated Philip Jefferson, a member of the Federal Reserve’s Board of Governors, to serve as vice chair of the board, the White House announced Friday.

Biden has also chosen Adriana Kugler, a Georgetown University economist, to join the Fed’s board. If confirmed by the Senate, she would become the first Hispanic American on the Fed’s interest-rate-setting committee.

The two nominations arrive as the Fed is grappling with an increasingly fraught economy marked by rising interest rates, still-high inflation and a shaky banking system. Since March 2022, the Fed has raised its benchmark interest rate 10 times, to the highest level in 16 years, in an aggressive drive to cool price increases. After a policy meeting last week, Chair Jerome Powell signaled that the Fed may now pause its rate hikes.

In the coming months, the Fed will face tough decisions about whether to keep rates unchanged for the rest of this year or resume raising them. Fed officials could also come under pressure to cut rates should a recession occur later this year, as many economists expect.

Jefferson, 61, who first joined the Fed’s board just a year ago, would become the second Black man to serve as the Fed’s No. 2 official if confirmed by the Senate. He would replace Lael Brainard, who left in February to become Biden’s top economic adviser. As vice chair, Jefferson would join an inner circle of policymakers that includes Powell and the president of the Federal Reserve Bank of New York, John Williams.

Kugler, 53, who has a background in international and labor economics, is on leave from Georgetown to serve as the United States’ representative on the board of the World Bank. During the Obama administration, she was the Labor Department’s chief economist, from September 2011 to January 2013.

Biden also announced that he plans to re-nominate Lisa Cook to a full 14-year term on the Fed’s board. Cook, 58, who was narrowly confirmed by the Senate, joined the board last May to fill an unexpired term that will end on Jan. 31, 2024.

“These nominees understand that this job is not a partisan one, but one that plays a critical role in pursuing maximum employment, maintaining price stability and supervising many of our nation’s financial institutions,” Biden said in a statement.

After the Fed’s policy meeting last week, Powell said that while inflation remains far above the Fed’s 2% target, turmoil in the banking sector could lead to tighter credit for businesses and households and weaken the economy. That could allow the Fed to end its rate-hiking campaign.

Biden’s choice of Kugler follows long-standing demands by Sen. Robert Menendez, a New Jersey Democrat, that a Latino be chosen for the rate-setting committee for the first time in the Fed’s 109-year history. Menendez voted last year against Biden’s nomination of Powell for a second four-year term to protest the lack of Latino officials at the Fed.

In a statement, Menendez applauded Kugler’s nomination.

“We are witnessing history unfold in real time,” he said.

Jefferson and Kugler have won Senate approval before. Jefferson sailed through the Senate on a 91-7 vote last May. Kugler was confirmed to her World Bank position by a unanimous voice vote last April.

Both Jefferson and Kugler would vote on financial regulatory policy, an area that has assumed a higher profile after the collapse of three large banks, as well as on interest rate decisions.

As a Fed governor, Jefferson has voted in favor of every rate hike the central bank has imposed since joining the central bank in May 2022. He has also echoed Powell’s concerns that unemployment will likely have to rise, at least modestly, to bring inflation down to the Fed’s 2% target.

Jefferson has also emphasized the need to keep Americans’ inflation expectations in check. Like many economists, Jefferson believes that such expectations can become self-fulfilling: If businesses and workers start to expect high inflation to persist, both will seek to offset rising costs by either charging higher prices or demanding higher pay. Both trends can then further intensify inflation.

Given such concerns, some analysts consider Jefferson to lean slightly “hawkish” in his policy views. Hawks typically prefer higher interest rates to ward off inflation, while “doves” generally support lower rates to boost hiring.

In recent remarks, Jefferson expressed confidence in the U.S. banking system and said that data showing that banks are tightening credit are consistent with the Fed’s efforts to slow the economy. He added that inflation is declining and that the “economy has started to slow in an orderly fashion.”

Cook has also supported the rapid pace of rate increases since joining the board the same day last year as Jefferson. But in late April, she offered an equivocal view of the Fed’s next steps: She pointed to a pullback in lending by banks as a reason why the Fed might have to impose fewer rate hikes to conquer inflation.

If, however, economic data pointed to “continued strength in the economy and slower disinflation, we may have more work to do,” Cook said.

Jefferson, who grew up in a working-class family in Washington, D.C., according to an interview with the American Economic Association, has focused his economic research on poverty and monetary policy. Before joining the Fed, he was an economist and administrator at Davidson College in North Carolina.

Kugler has conducted extensive research on worker training in the United States and Colombia. One of her recent papers studied the effects of extended U.S. unemployment benefits during two pre-pandemic recessions. Her study found that the additional aid helped people take more time to find jobs that fit their skills and qualifications, and lifted their wages.

Kugler earned a Ph.D. in economics from the University of California, Berkeley. Jefferson obtained his doctorate in economics from the University of Virginia.

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May 12, 2023