Shoppers will see lower grocery bills after ‘historically high’ prices but your mortgage may still soar expert reveals

THE Federal Reserve is expected to soon drop the interest rate and relieve shoppers with some price stability at grocery stores, according to experts.

As consumers are hit hard by high interest rates, fluctuations in inflation and employment may mean a favorable drop in borrowing costs.

Interest rates are the cost of borrowing loans and the main tool the central bank uses to steady both unemployment levels and inflation.

As high loan costs reduce consumer spending, price increases are eased.

Additionally, businesses facing high borrowing costs and low consumer demand may reduce production or lay off workers, leading to higher unemployment.

THE HIGH-LOW

Low inflation but high unemployment has been the case recently, pushing expectations of a cut in interest rates.

The interest rate flat lined for two years during the pandemic to encourage spending then slowly rose starting in March 2022, ultimately reaching a two-decade high.

The central bank aimed to decrease inflation as it had soared to over 9% in June 2022.

During the Federal Reserve's last meeting in July, it held interest rates steady at 5.25% to 5.50% - the same level rates have sat at since July 2023.

Inflation is currently hovering around 2.9% thanks to the high interest rates.

"Inflation has cooled because of many interrelated factors such as higher interest rates and a rise in joblessness that are both contributing to slower wage growth," retail expert Mitchell Olsen exclusively told The U.S. Sun.

"Moreover, many industries have now found their post-pandemic supply and demand equilibrium, which is helping stabilize prices throughout supply chains."

Although inflation has decreased, the Federal Reserve is now concerned that reduced inflation comes at the cost of higher unemployment.

In July, the unemployment rate increased to 4.3%, and the hiring rate has slowed to below the pre-pandemic average.

Federal Reserve Chair Jay Powell shared on August 23 that the central bank may consider cutting interest rates due to the cooling inflation and rising concerns about unemployment levels.

Inflation, employment levels, and the demand for loans have all fallen to levels lower than those seen before the pandemic, prompting his predictions.

"The time has come for policy to adjust," said Powell at a speech during the Fed's annual August summit.

“Inflation has declined significantly. The labor market is no longer overheated, and conditions are now less tight than those that prevailed before the pandemic. Supply constraints have normalized. And the balance of the risks to our two mandates has changed.”

CPI and Inflation explained

The Consumer Price Index is how the federal government measures inflation.

Every month, the Bureau of Labor Statistics shares its CPI numbers with detailed breakdowns of which items have changing prices.

The CPI shows the amount prices rose or fell over the previous 12 months.

The calculation process is complex, but measures the changes in price for urban consumers, those living or working in an American metropolitan area.

While that does not cover everyone, it measures prices for about 90% of the population.

Powell noted that the Federal Reserve's decision would "depend on incoming data, the evolving outlook, and the balance of risks.”

He was unclear about the specific timing and extent of a cut in interest rates, however, leaving consumers to anticipate the central bank's decision at its next Federal Open Market Committee on September 17.

INTEREST RATE IMPACTS

Olsen, a marketing professor at the University of Notre Dame specializing in retail, delved deeper into the implications that the predicted drop in interest rates would have on consumers.

"Whether the Fed cuts rates by 0.25 or 0.50 percentage points at its September meeting, it is important to keep in mind that interest rates will still be at historically high levels," warned Olsen.

Interest rates are currently the highest in over 20 years, since around 2000 and 2001 when the rate was over 6% during the dot-com boom.

"However, a rate cut should trickle down to lower borrowing costs for consumers, which should make financing large purchases of any kind slightly more affordable," he said.

This includes purchases such as cars, home renovations, education, furniture, appliances, and homes.

We likely won't see a dramatic improvement in mortgage rates or housing affordability in the near term, but at least they should be moving in a welcome direction for prospective home buyers.

Regarding the latter large purchase, Olsen noted that mortgage rates are not directly tied to interest rates but are indirectly influenced.

"For those looking to purchase a home, mortgage rates will likely begin making a gradual return to Earth after the Fed begins cutting interest rates," he predicted.

Olsen noted that lower mortgage rates would mean a positive uptick in housing affordability, but consumers shouldn't expect any drastic changes anytime soon.

"We likely won't see a dramatic improvement in mortgage rates or housing affordability in the near term, but at least they should be moving in a welcome direction for prospective home buyers," he said.

Olsen also noted that the cooling inflation and predicted drop in interest rates wouldn't translate to much savings at the grocery store.

"We shouldn't get our hopes up for lower prices at the grocery store," said the retail expert.

"However, the Fed is signaling it believes the prices we pay in stores won't be increasing as quickly in the short term."

He noted that it was becoming increasingly challenging for companies to raise the prices of consumer packaged goods due to pushback from both retailers and consumers.

"At least in the near term, we're likely to see more price stability in stores," said the expert.

The U.S. Sun previously spoke with Olsen on related topics, such as why so many restaurant chains are closing locations.

Plus, he discussed why the Starbucks and Victoria’s Secret CEO changes don't mean lower prices for shoppers.