Is another US interest rate increase looming?

A pause on further rate hikes — for now

A pensive Jerome Powell sits under a row of intense lights
The Fed is expected to hike rates once more before the year is over
(Image credit: Tom Williams / CQ-Roll Call / Getty Images)

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The Fed held off on another rate hike in September but kept the door open for further increases before the end of the year. In light of this decision, the central bank's benchmark interest rate remains between 5.25% and 5.50%, the highest it's been in 22 years, The Wall Street Journal noted.

It's looking like rates will stay higher with fewer cuts in 2024, as inflation remains stubbornly high. In 2024, rates are now forecasted to fall in the range of 4.88% and 5.62%, in contrast to previous projections estimating somewhere between 4.38% to 4.62%, CNN reported.

What will the Fed do next?

The central bank is expected to hike interest rates once more before the year is over. Policymakers largely predict that the benchmark funds rate will end 2023 in the range of 5.50% to 5.75%, which is a quarter of a percentage point higher than it was after the Fed's September meeting, per Reuters.

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That said, at least one expert contends that the unpredictable strength of the economy could throw off the Fed's likeliest plan of action. "The economy is growing stronger than the Fed thought and no one — not even Powell — knows what they will do in the 4th quarter," Gina Bolvin, president of Bolvin Wealth Management Group, told CNBC. Further, while 12 of the FOMC's 19 members indicated they expect another rate hike in 2023, seven members suggested rates would remain where they are, according to The New York Times.

But regardless of what happens in the remaining months of the year, one thing was clear: "Policymakers don’t expect to cut rates nearly as much next year as their June projections implied, and they expect rates to stay higher in 2025 as well," reported the Times. This is largely because, in the words of Federal Reserve Chairman Jerome Powell, "The process of getting inflation sustainably down to 2% has a long way to go."

When is the next interest rate decision?

The Federal Reserve is next set to meet on Oct. 31-Nov. 1. Fed officials largely anticipate making one more rate hike in 2023. They will also meet in December. 

How do interest rates affect the economy?

The Fed uses interest rates "like a gas pedal and a brake pedal," Forbes explained. Lowering rates stimulates the economy; raising rates slows the economy down. The agency doesn't actually set the funds rate — banks do that — but "the Fed assumes that banks will use it as a floor in their own lending," Forbes added.

Rate changes usually take "at least 12 months" to have "widespread economic impact," Investopedia explained. But the stock market reacts immediately. For example, when Fed chairman Jerome Powell signaled in early March that further interest rate hikes were likely, the market went into a bit of a tailspin. The major indexes each fell more than 1%. Beyond stocks selling off, "Treasury yields rose and the dollar extended again after Powell's comments," Reuters reported.

What do rate hikes mean for your wallet?

As Kiplinger puts it, "rate hikes are a blessing and a curse for consumers." When the Fed raises rates, consumers will pay higher interest rates on debt like credit cards, home equity lines of credit, and private student loans. However, on the flipside, savings rates also tend to increase. In the face of rate hikes, Kiplinger offers the following pieces of advice:

  • Pay off any debt. Aim to pay off your debt before interest rates get any higher. While the impact might feel gradual initially, continued increases ultimately can make paying off debt more challenging.
  • Lock in rates if you can. For those with a home equity line of credit, consider locking in a lower rate on all of a portion of your balance.
  • Take advantage of top savings rates. Finally, take advantage of increasing savings rates. Kiplinger advises consumers that they'll usually find the best rates at online banks or other online financial institutions, including the ones in the table below.

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Becca Stanek has worked as an editor and writer in the personal finance space since 2017. She has previously served as the managing editor for investing and savings content at LendingTree, an editor at SmartAsset and a staff writer for The Week. This article is in part based on information first published on The Week's sister site, Kiplinger.com

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