As the dust settles here on 2019, it’s a really good time to take a look at where we are in the world of money, particularly inflation and interest rates. The end of any year gives you a chance to look back at it and then project ahead. Money smart people always do that.
Perhaps it’s just me, but anytime I see and hear someone talk about the inflation numbers, I immediately think about everything that I purchase that costs me more today than yesterday. One of the detriments of getting older is that you can actually remember the prices of things from 10, 20, 30, and 50+ years ago. So yeah, I may have a distorted view of rising prices (at least just a little bit). But reality tells me that prices keep going up. It reminds me of that great song, “The Beat Goes On”, cause it certainly does.
What I Said About Inflation Just Nine Months Ago
In a blog post I wrote back in March 2019, I said the following:
No matter what the government stats try to tell you, the everyday prices of things you buy are going up. Just last week, Fed Chair Jerome Powell said that “inflation is running about what the Fed target calls for: 2.0%” and that’s why he has slowed down the call for interest rate increases so far in 2019. Interest rate increases are implemented to prevent the inflation rate from moving upwards and out of control and so his comments sound like a good read of the current conditions.
Was Inflation Under Control Or Was It Just a Big Lie?
The Federal Reserve reversed its original projections from March 2019 and actually cut interest rates three times (so far) in 2019. I say so far because the Fed is meeting again today and tomorrow (December 10-11th) again and we don’t know what, if any, actions they may take when it comes to interest rates and their take on the inflation track.
The decision to cut rates despite rock-bottom unemployment and decent overall growth shows the extent to which Trump’s hot-and-cold trade war and general pessimistic global outlook have put the Fed on the defensive. While the central bank was on a steady march to raise rates just a year ago, it has spent the past nine months trying to insulate the American economy against those threats and keep record expansion humming.
But Chew on This for a Moment…
The very last Fed announcement on interest rates from October came on a day when new government figures showed that American economic growth had inched lower in the last several months. Gross domestic product (GDP) grew at only a 1.9% annual rate for the third quarter, according to data released by the Commerce Department. Business investment fell 3%, with spending on factories and offices dropping more than 15%.
The decision to lower rates to a range of 1.5 to 1.75% was not unanimous. The two policymakers who voted against this year’s previous cuts dissented once again on the October cuts.
But despite the lowering of interest rates, the Fed dropped a key line from its post-meeting statement in which it pledged to “act as appropriate to sustain the expansion”, language it had been using to signal a willingness to lower interest rates.
It’s clear it was making known that it would need to see economic deterioration before cutting any interest rates again.
Why Does Trump Want Interest Rates Slashed Again?
The Fed moves so far have been only a little bit to President Trump’s liking. He has been pressing the central bank to slash rates for more than a year and has said the Fed should cut rates to zero or below. Trump often couches his calls for cheaper borrowing costs in competitive terms, comparing the United States’ monetary policy to that in Europe where the economy is much weaker.
He also sees that much-lower interest rates could bolster stock prices and give the economy a big lift headed into the 2020 election, which would be good news for the president. Absent any help, most economists expect that growth will gradually decline to below the 2% threshold, as the short-term benefits of President Trump’s 2017 tax cuts and higher government spending fade and continue to fade. Many say that those tax cuts are the main reason for signals of economic growth amongst those who influence it.
All of this is a problem for the president who promised to coax growth to 3%, 4% or even 5% and 6%, well above the level economists see as sustainable given current demographic and productivity trends of the country.
The “Easy to Win” China Trade War
President Trump has said numerous times that negotiators are making progress toward a first-phase deal with China. But, as of yet, very little if any agreements have been made and these agreements will have a landslide of effects on U.S. inflation and economic growth in the short and long term. And all of that will affect inflation and investment returns that you may or may not ever see. Oh, and just last week the president said “maybe we should wait until after the November 2020 election to make a deal with China”, seemingly holding his re-election bid as ransom for such a deal.
The “easy to win trade war” had been dragging along now for what seems like years to me and I know it has already had negative impact on the economy and prices. Ask anyone who farms for a living or had to purchase a washing machine and they can tell you what the impact has been. Millionaires and those heavily invested in the market may have seen their equity values grow because of the Fed actions, but everyday shoppers and some people who try to save money in a bank account for their future use have different experiences when they speak about their money!
Just for fun, I was looking around to see what inflation has been and what it might be down the road ahead. It’s really not funny though, because so many of us never think twice about inflation and its terrible impact on our lives, especially when our jobs, earnings, and future expenses are so unpredictable. Who would have ever thought that during the period of the past 20 years earnings would be basically stagnant? That means that salaries have not grown very much or at all while the cost of everything continued to climb 50% since 2000, almost 20 years ago. Check it out with this inflation meter.
The meter calculates inflation to see what a U.S. dollar was worth in the past and today. View historical and today’s current inflation rates using the CPI provided by the United States government. Inflation data is updated regularly, so results may differ from other websites.
What Can You Do About Inflation and Interest Rates?
If this blog has any significance at all, then it’s this: “Don’t just live in a bubble”. You must pay attention to your finances and be a realist, too. Watch out for your money and the prices you pay on what you spend, especially on the recurring basics in life like food, clothing, and shelter. Track your expenses and change the way you spend when you need to!
That’s the premise of super saving. Look for an edge, a deal, and read about them here and other places for free on the net. Then take action. It’s not just nice to save money, it’s a “prime directive” if I can steal a line from Star Trek!
It’s not difficult to become a smarter shopper. Of course, earning more and expanding your knowledge, performing well at your job to get a raise, and working at getting better shopping results are also ways you can fight inflation. But it’s a battle that I am afraid you will more than likely be waging for as long as you live.
It’s definitely challenging, but it can also be fun and rewarding when you make it a success. I may complain about it, but it does provide me some reason to wake up and write about it every day. I hope you’re listening. Are you? If you are, I’d love to hear from you. I am more than willing to get a “super saving tip” or three from a reader who knows from experience how to save and earn more. Is that you?
What are you doing to rein in inflation? Are you feeling it or are you just oblivious to the small but incremental inflation creep that occurs? What do you do to stay on track with expenses of the everyday cost of living?