Inflation hits its highest in 13 years – here’s what it means for interest rates

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Inflation jumped to record rates, hitting 5.4% per year in September. Experts explain what this will mean for the Fed’s interest rates and monetary policy. (iStock)

Inflation surged with an annual rate of 5.4% in September, scoring the highest rate in the past 13 years, according to the last report released Wednesday by the US Bureau of Labor Statistics (BLS).

The Consumer Price Index (CPI), which is the US measure of inflation, for all urban consumers rose due to a surge in energy prices and marked the largest annual increase since July 2008, according to data. On a monthly basis, the CPI rose 0.4%, up from the 0.3% increase in August.

Energy prices rose 1.3% in September and peaked 24.8% from a year ago, according to the report. Prices for other items also rose, such as the food and shelter indexes, which rose 0.9% and 1.2%, respectively. But on an annual basis, the food index only increased by 4.6%. In addition, gasoline components increased 1.2% in September and 42.1% in the most recent year.

Economic growth and rising prices could lead to higher interest rates. Consumers can take advantage of today’s low rates by refinancing their student loans. Visit Credible to find your personalized loan rate and see how much you could save.

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Federal Reserve monitors inflation rates

In the middle of September’s hike, at least one Federal Reserve member is suggesting the Fed take action. St. Louis Federal Reserve Chairman James Bullard said the central bank should actively seek to end its bond buying program in the event that rate hikes are needed sooner than expected due to of rising inflation.

“I would support the start of the cone in November,” Bullard said in a interview with CNBC. “I advocated trying to end the downsizing process by the end of the first quarter of next year because I want to be able to react to any upside risks to inflation l ‘next year as we try to get out of this pandemic. “

Currently, the Fed keeps the fed funds rate at 0% as it monitors economic activity such as core inflation, wages and other indicators. However, it increasingly plans to initiate rate hikes as early as next year. If you want to take advantage of low rates before they rise, you might consider taking out a personal loan to consolidate high-interest debt. Visit Credible to compare multiple lenders at once and choose the one that suits you best.

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Experts doubt change in Fed response

Despite high inflation figures and growing talk of rate hikes, one expert doubts it will be enough to change the Fed’s current monetary policy plans.

“Inflation remained high in September, as expected, due to persistent disruptions in supply and labor shortages,” said Dawit Kebede, senior economist for the Credit Union National Association (CUNA). “The imbalances between demand and supply that led to price increases have not changed after a slight indication of a slowdown in August.

“The small monthly change for September is not surprising given the impact of Delta in recent months, and may not bring a change in the calculation of the Federal Reserve’s monetary policy response,” Kebede said .

While rate hikes in 2022 are still debated, most members of the Federal Open Markets Committee (FOMC), which controls monetary policy in the United States, agree that rate hikes will be justified by 2023. And interest rates are already starting to rise.

Freddie Mac’s latest report showed that the average interest rate for a 30-year fixed-rate mortgage rose to 3.05% for the week ending October 14, making it the highest point since April. And a lot experts expect this trend to continue.

“The 30-year fixed-rate mortgage hit its highest level since April,” said Sam Khater, chief economist at Freddie Mac. “As inflationary pressure intensifies due to the ongoing pandemic and tightening monetary policy, we expect rates to continue rising slightly.”

If you want to take advantage of low interest rates before they go up, consider mortgage refinancing to lower your monthly payment. Contact Credible to speak to a mortgage expert and get all your questions answered today.

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