Inflation Jumped in February. Should Consumers Say Goodbye to 2024 Interest Rate Cuts?


Inflation has been wreaking havoc on consumers’ personal finances since 2021. To combat it, the Federal Reserve spent much of 2022 and 2023 implementing interest rate hikes. By making it more expensive to borrow money, the Fed’s goal was to drive consumers to curb their spending, thereby narrowing the gap between supply and demand that caused inflation to surge.

Thankfully, inflation has been cooling — so much so that the Fed seems to be done with interest rate hikes, at least for the time being. In fact, the Fed has signaled that interest rate cuts could be in store for 2024.

But the latest inflation data could result in a delay in those interest rate cuts. And that means that consumers may be grappling with higher borrowing costs for longer than they want to.

February’s inflation data came in hot

In February, the Consumer Price Index, which measures changes in the cost of consumer goods and services, rose 3.2% on an annual basis. That’s not such a large jump from January, but the problem is that the Fed wants to see inflation inch down toward the 2% mark before it starts cutting interest rates. And in light of this data, the central bank may decide to delay those rate cuts to the end of 2024.

Why is this a problem? Though the Fed doesn’t directly set borrowing rates for consumer products like auto loans and personal loans, when it raises its benchmark interest rate, the cost of borrowing tends to rise. And when the Fed cuts rates, individual lenders tend to follow suit.

Many consumers have put off borrowing money for the past year or so to avoid getting stuck with a hefty interest rate on a loan. And many are waiting for the Fed to cut rates so they can jump at the opportunity to borrow for less. But now, they may have to wait longer.

The one silver lining

While a lot of consumers are eager to see the Fed lower interest rates, one benefit of rates holding steady is that banks are still paying more interest on products like savings accounts and certificates of deposit (CDs). So if the Fed decides to wait on lowering interest rates, it gives savers the opportunity to earn more on their money.

RELATED: What Is a Certificate of Deposit (CD)?

In fact, at this point, it’s pretty unlikely that the Fed will cut rates during the first half of 2024. That could be considered a good thing, though, because taxes are due April 15, and many Americans may receive their refunds in the weeks that follow. If the Fed delays its rate cuts, it gives refund recipients more time to put their money into savings or certificates of deposit while rates are higher.

To be clear, February’s inflation report isn’t all that shocking, nor is it terrible. That 3.2% annual inflation reading is basically in line with recent readings, give or take a notch. But the Fed may be holding out for a reading of under 3% to move forward with rate cuts, so February’s report tells us that for the time being, consumers may have to sit tight.

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