Report: New inflation reality as Fed set to cut interest rates

By BEN SHIMKUS, US CONSUMER REPORTER

Published: | Updated:

After 57 straight months of stores steadily raising prices, one top finance executive has revealed a frightening new reality for shoppers. Inflation has shot back up and remains stubbornly high at 3 percent, despite the Federal Reserve 's attempts to tame rising prices by upping interest rates. The central bank is set to announce its latest rate decision today. The Fed, led by chair Jerome Powell, has long tried to strike a balance of raising interest rates when everyday costs increase and cutting them when hiring slows.

After 57 straight months of stores steadily raising prices, one top finance executive has revealed a frightening new reality for shoppers. Inflation has shot back up and remains stubbornly high at 3 percent, despite the Federal Reserve 's attempts to tame rising prices by upping interest rates. The central bank is set to announce its latest rate decision today. The Fed, led by chair Jerome Powell, has long tried to strike a balance of raising interest rates when everyday costs increase and cutting them when hiring slows.

While the central bank has publicly committed to trying to bring inflation down to around 2 percent, one asset manager said the Fed has secretly abandoned that effort. 'This will never be formalized or admitted publicly,' said Tom Hulick, CEO of Strategy Asset Managers. 'But the Federal Reserve's inflation target has effectively been raised to 3 percent.' Now, shoppers should expect inflation to remain consistent at 3 percent, meaning prices will stay high.

While the central bank has publicly committed to trying to bring inflation down to around 2 percent, one asset manager said the Fed has secretly abandoned that effort. 'This will never be formalized or admitted publicly,' said Tom Hulick, CEO of Strategy Asset Managers. 'But the Federal Reserve's inflation target has effectively been raised to 3 percent.' Now, shoppers should expect inflation to remain consistent at 3 percent, meaning prices will stay high.

Hulick's warning comes as the Fed has been staring down a rare, damaging combination of costs increases everywhere from grocery stores to car dealerships, while America's unemployment rate has slowly ticked up . With both gauges moving in the wrong direction, Hulick said there's nothing left for the Fed to do but desert one of its two core principles of balancing inflation and job growth. The Fed raising its inflation target to 3 percent would lock in permanently higher prices, meaning Americans would keep paying more for the same groceries, gas, and rent, with no relief in sight.

Hulick's warning comes as the Fed has been staring down a rare, damaging combination of costs increases everywhere from grocery stores to car dealerships, while America's unemployment rate has slowly ticked up . With both gauges moving in the wrong direction, Hulick said there's nothing left for the Fed to do but desert one of its two core principles of balancing inflation and job growth. The Fed raising its inflation target to 3 percent would lock in permanently higher prices, meaning Americans would keep paying more for the same groceries, gas, and rent, with no relief in sight.

Hulick has raised the red flag just as Powell called the Fed's committee back to Washington, DC this week, with the central bank set to decide on Wednesday whether to lower interest rates for the third time this year. Investors are currently betting that the committee will cut interest rates by a quarter point for the third straight time. 'We can expect rate cuts to continue so long as inflation remains near this new de facto target,' Hulick said, noting that he expects the trend to extend into next year. While lower interest rates might help trim mortgages, car loans, and credit card bills, they also risk sending inflation up again.

Hulick has raised the red flag just as Powell called the Fed's committee back to Washington, DC this week, with the central bank set to decide on Wednesday whether to lower interest rates for the third time this year. Investors are currently betting that the committee will cut interest rates by a quarter point for the third straight time. 'We can expect rate cuts to continue so long as inflation remains near this new de facto target,' Hulick said, noting that he expects the trend to extend into next year. While lower interest rates might help trim mortgages, car loans, and credit card bills, they also risk sending inflation up again.

That could fuel the years-long struggle in the American economy already weighing on shoppers. Inflation started creeping up in early 2021 as companies rebooted their operations during Covid lockdowns. Shoppers, flush with cash from government stimulus checks and student loan repayment pauses , were spending top-dollar on their favorite goods. That allowed companies to increase prices as they rushed products to stores. Prices rose by over nine percent in the summer of 2022 during peak demand. Inflation started to take a toll in 2023, as several years of price increases began to crush America's middle and working classes.

That could fuel the years-long struggle in the American economy already weighing on shoppers. Inflation started creeping up in early 2021 as companies rebooted their operations during Covid lockdowns. Shoppers, flush with cash from government stimulus checks and student loan repayment pauses , were spending top-dollar on their favorite goods. That allowed companies to increase prices as they rushed products to stores. Prices rose by over nine percent in the summer of 2022 during peak demand. Inflation started to take a toll in 2023, as several years of price increases began to crush America's middle and working classes.

Price hikes started to slow in the early part of this year, with inflation falling to 2.3 percent in April. But it has increased over five straight months, according to available government data, including the latest reading at 3 percent in September . Most companies point to President Donald Trump's tariffs as the cause of the price hikes. If the Fed lowers interest rates as expected, it could have a major impact on how much money Americans have in their bank account.

Price hikes started to slow in the early part of this year, with inflation falling to 2.3 percent in April. But it has increased over five straight months, according to available government data, including the latest reading at 3 percent in September . Most companies point to President Donald Trump's tariffs as the cause of the price hikes. If the Fed lowers interest rates as expected, it could have a major impact on how much money Americans have in their bank account.

Lower rates could free up money for American consumers and businesses, in turn boosting spending, stock prices, and 401(k) accounts. Bret Kenwell, an investment analyst at eToro, told the Daily Mail that Wall Street has been giddy about potential rate drops. 'The S&P 500 is within a stone's throw of its record highs, no doubt helped along by optimism the Fed will cut rates next week,' Kenwell said. 'Combined with strong earnings growth, we could have the makings for a solid year-end rally, but investors will need to hear the right tone from the Fed.'

Lower rates could free up money for American consumers and businesses, in turn boosting spending, stock prices, and 401(k) accounts. Bret Kenwell, an investment analyst at eToro, told the Daily Mail that Wall Street has been giddy about potential rate drops. 'The S&P 500 is within a stone's throw of its record highs, no doubt helped along by optimism the Fed will cut rates next week,' Kenwell said. 'Combined with strong earnings growth, we could have the makings for a solid year-end rally, but investors will need to hear the right tone from the Fed.'

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