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Inflation Jumps to 3.5%, Jeopardizing Hopes for Predicted Rate Cuts

The steady creep of inflation continues to defy expectations. Will the Fed backtrack on cutting interest rates this year?

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Key takeaways

  • The Consumer Price Index rose 3.5% year over year, and the core index has risen 0.4% for three straight months.
  • Inflation rates have steadily inched upward since the beginning of 2024, which could indicate that inflation is harder to tame than previously estimated.
  • The upward trend in inflation reduces the chances the Federal Reserve will follow through on its predicted three rate cuts this year.

Inflation took an upward swing in March, with prices rising 3.5% in the last 12 months, up from 3.2% in February, according to the latest release of the Consumer Price Index. Inflation’s continued resilience threatens the chances the Federal Reserve will make its predicted three rate cuts this year.

Core prices, which exclude volatile items like food and energy, increased 0.4% in March, as it has for the past three months.

With inflation sticking stubbornly above its 2% target and unemployment remaining low, the Fed is unlikely to lower rates until the second half of 2024, if at all, so don’t expect a respite from high interest rates on credit card debt or loans anytime soon.

“I don’t see how you can justify cutting rates with a job market that looks like this, an economy that is growing at a pretty good clip, and inflation is still running almost 2% above their target,” said Gregory Heym, chief economist at real estate service company Brown Harris Stevens.

Following its March Federal Open Market Committee meeting, Chair Jerome Powell said the Fed still expects to make rate cuts “at some point this year.” But Powell emphasized that the decision to cut interest rates depended on inflation and that the Fed remains committed to bringing inflation back to its 2% target.

The Fed indicated at its final meeting in 2023 that it anticipated making multiple interest rate cuts in 2024. The Federal Open Market Committee voted at its first two meetings in 2024 to continue holding the benchmark interest rate steady at a target range of 5.25% to 5.5%. The Fed will vote on rates at its upcoming meetings scheduled for April 30 to May 1 and June 11 to 12. 

Inflation isn’t something that can be tackled overnight, and it’s still taking a toll on US households and consumers. Here’s a quick primer on the state of inflation and steps you can take to prepare for what’s ahead.

What the latest CPI data tells us

At 3.5%, the inflation rate is still lower than rates we saw last year -- it was at 5% in March 2023. However, even though prices aren’t increasing by as much as they were a year ago, they’re still higher than they were before the pandemic. 

Since the beginning of the year, the index’s inflation data has bucked expectations and continued inching upward, with core index increasing 0.4% in January, February and March.  And overall inflation hasn’t been this high since September. 

The Bureau of Labor Statistics’ CPI is one of the most closely watched gauges of US inflation, tracking data on 80,000 products, including food, education, energy, medical care and fuel. 

Wait, what is inflation?

Inflation means your dollar bill doesn’t stretch as far as before, whether at the grocery store or a used car lot. 

Inflationary pressures happen over time and require historical context to understand. For example, in 1993, the average cost of a movie ticket was $4.15. Today, watching a film in the theater will easily cost you $13 for the ticket alone, never mind the popcorn, candy or soda. A $20 bill 30 years ago would buy someone more than double what it buys today. And while wages have also risen over the past few decades, they haven’t kept up with inflation. Consumers have less purchasing power. 

Are we still in a period of high inflation?

Inflation affects everyone differently, and it isn’t determined by observation. It’s backed by a consensus of experts who rely on market indexes and research. 

Along with the CPI increase, the Personal Consumption Expenditures price index, prepared by the Bureau of Economic Analysis, also increased in March: Core inflation, excluding volatile energy and food, was up 2.8% year over year and 0.3% from the previous month. The PCE index includes all goods and services and is the Federal Reserve’s preferred inflation gauge.

The BLS also puts together a Producer Price Index, which tracks inflation from the perspective of the producers of consumer goods, measuring changes in seller prices in industries like manufacturing, agriculture, construction, natural gas and electricity. 

The current inflationary period started back in April 2021, when consumer prices jumped at the fastest pace in over a decade. Inflation was originally thought to be temporary while economies bounced back from COVID-19. 

But as months progressed, supply chain bottlenecks persisted and prices skyrocketed. The US was then hammered by unanticipated shocks to the economy, including subsequent COVID variants, lockdowns in China and Russia’s invasion of Ukraine, leading to a choked supply chain and soaring energy and food prices. 

How the Federal Reserve’s rate hikes relate to inflation

The Fed moderates inflation and employment rates by managing the money supply and setting interest rates. Part of its mission is to keep average inflation at a steady 2% rate. 

When the Fed increases the federal funds rate -- the interest rate banks charge each other for borrowing and lending -- it restricts how much money is available to borrow and spend, which has an impact on economic growth. Banks pass on rate hikes to consumers, meaning everything from credit card APRs to interest rates on personal loans tick up. Consequently, this can drive consumers, investors and businesses to pause their investments, leading to a rebalance in the supply-and-demand scales. 

In general, when interest rates are low, the economy and inflation grow. And when interest rates are high, the economy and inflation slow.

When the inflation rate hit 8.5% in March 2022, the Fed set off an aggressive sequence of interest rate hikes in an attempt to slow the economy and curb prices by reducing consumer borrowing. After 11 rate hikes, the Federal Reserve paused interest rates at a target range of 5.25% to 5.5% in July 2023. 

The Federal Reserve’s next meeting to vote on interest rates is slated for April 30 – May 1.

What does inflation mean for you? 

Periods of high inflation make it harder to afford everyday essentials. Interest rate hikes mean it costs more for businesses and consumers to take out loans, so buying a car or home gets more expensive. As interest rates increase, liquidity in securities and cryptocurrency markets decreases, causing those markets to dip. Credit card debt and other forms of high-interest debt become more expensive. 

Though inflation has been easing for the past few months, it’s still unpredictable. Fed officials stated after their December meeting that inflation had “eased,” voting nearly unanimously that the policy rate will be lower by the end of 2024 but tempered expectations of rate cuts at its first meeting this year.

In the short term, experts recommend avoiding taking on new debt unless absolutely necessary. 

“When interest rates are high, the goal is to put off borrowing money as long as possible,” said Summer Red, AFC and Education Manager for the Association for Financial Counseling & Planning Education. “If you have to borrow money at high interest rates, be sure to shop around for the best interest rate and make sure that your loans do not have a prepayment penalty, so that you can pay off the loan early.”

One option is applying for a debt consolidation loan that could combine any high-interest variable debt into a lower-interest, fixed-rate loan and establishing a payoff plan. Getting a balance transfer card can also help you avoid high interest for a period of time. If the economy continues to be volatile, it’s also important for households to build up a financial cushion. 

While inflation has been stubborn, there’s one financial advantage to increased rates: Many CDs, high-yield savings accounts, money market accounts and treasury bonds are offering annual percentage yields, or APYs, at around 4% and 5% -- the highest savings rates seen since the 1990s. Experts recommend taking advantage of putting your funds in one of these accounts to get a bigger return on your balance before the Feds lower interest rates. The interest you earn can help you reach your emergency fund or sinking fund goal faster.

Dashia is a staff editor for CNET Money who covers all angles of personal finance, including credit cards and banking. From reviews to news coverage, she aims to help readers make more informed decisions about their money. Dashia was previously a staff writer at NextAdvisor, where she covered credit cards, taxes, banking B2B payments. She has also written about safety, home automation, technology and fintech.
Tiffany Wendeln Connors is a senior editor for CNET Money with a focus on credit cards. Previously, she covered personal finance topics as a writer and editor at The Penny Hoarder. She is passionate about helping people make the best money decisions for themselves and their families. She graduated from Bowling Green State University with a bachelor's degree in journalism and has been a writer and editor for publications including the New York Post, Women's Running magazine and Soap Opera Digest. When she isn't working, you can find her enjoying life in St. Petersburg, Florida, with her husband, daughter and a very needy dog.
Liliana Hall is a writer for CNET Money covering banking, credit cards and mortgages. Previously, she wrote about personal credit for Bankrate and She is passionate about providing accessible content to enhance financial literacy. She graduated from the University of Texas at Austin with a bachelor's degree in journalism, and has worked in the newsrooms of KUT and the Austin Chronicle. When not working, she is probably paddle boarding, hopping on a flight or reading for her book club.
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