Fed keeps interest rates flat, but economists say cuts could still happen this year

Economists say Wednesday’s Consumer Price Index report provides several reasons to be optimistic about the future.

The Federal Reserve’s decision to not lower interest rates this month is not the answer many American consumers were hoping for, but economists say there are still plenty of reasons to be optimistic about inflation.

University of St. Thomas Economics Professor Tyler Schipper had this to say,

With two straight months of promising inflation numbers, Schipper says many economists believe the Fed could still cut interest rates one or two times by the end of the year.

On Wednesday afternoon, The CME Group’s FedWatch Tool showed that economists believe there is a 61% chance the Fed will cut rates during their quarterly meeting in September, and a 93% chance the Fed will cut rates in December.

Schipper says there are other reasons to be optimistic as well.

The latest Consumer Price Index shows food prices stayed flat and gas prices went down.

But the sticky area that just won’t budge is the cost of shelter.

Schipper says once the cost of rent comes down then we could see some major progress in the fight against inflation.

On the home buying side, Minneapolis Area Realtors Association President Jamar Hardy says home prices are starting to stabilize, which is helping buyers who are on a tight budget, and pushing more sellers to list their homes.

Recent data from the Minneapolis Area Realtors Association shows more home listings every week this spring and summer compared to last year.

However, the same data shows fewer home sales in recent weeks compared to last year, which could mean some buyers are holding out hope for lower interest rates.

Hardy says a bigger factor may be seasonal distractions such as the heavy amounts of rain we’ve seen this spring.

If the Fed does decide to cut interest rates one or two times this year, economists say each of those cuts will likely be cuts of about 0.25%.

So, if both interest rate cuts happen, the total would be 0.5%.

Schipper says Americans who are struggling with credit card debt may not notice a significant change on their monthly statement, but every little bit helps.

He says home buyers likely won’t see a significant change right away either, because mortgage rates aren’t solely based on the Federal Reserve’s interest rates, there are several other factors as well.

However, Schipper says many Americans should notice a big change in their retirement and investment accounts.

The stock market showed a strong reaction Wednesday after the promising CPI report was released and Schipper says the stock market will likely show a positive reaction if the Fed does decide to lower interest rates later this year.