Will the Fed continue to raise interest rates in 2023?

A person looks at their financial documents and their laptop with anxiety.

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It’s something consumers have to prepare for.


the main points

  • The Federal Reserve implemented several large interest rate increases in 2022 to fight inflation.
  • Although the pace of inflation has slowed, we could see a continued rise in interest rates this year.
  • This means that borrowing money will cost consumers more, in the form of higher interest rates.

For nearly all of 2022, consumers have had to grapple with spiraling inflation. As a result, many have depleted their savings and acquired debt just to stay afloat.

Meanwhile, the Federal Reserve has implemented a series of sharp interest rate increases in 2022 in an effort to bring inflation down to a more moderate level. The Federal Reserve does not set consumer borrowing rates, such as rates for auto loans or mortgages. Instead, it oversees the federal funds rate, which is the rate banks charge each other for short-term loans.

But when the federal funds rate goes up, consumer borrowing rates tend to follow suit. And as borrowing becomes more expensive, consumers are likely to cut back on spending.

This is what the Fed is counting on. It wants consumers to start spending less so that the supply of available goods can catch up with demand. Once that happens, it should help moderate inflation and give those strapped for cash some relief.

But while the Fed may have good intentions in terms of raising interest rates, the reality is that these can be brutal for consumers. These days, it costs more money to borrow in any form, be it through a credit card or a personal loan. So perhaps consumers are tired of the price hike at this point. But unfortunately, we may not be done with them – even though the pace of inflation has already slowed.

Expect more price increases in 2022

As of the end of 2022, the annual inflation rate was around 7%. This is better than it was in the summer of 2022, when inflation peaked at around 9%. But 7% is still a high level of inflation. The Fed is by no means satisfied with the progress that has been made on the inflation front.

As such, we can expect the Fed to continue to push forward with rate hikes in 2023. Those hikes may not be as sharp or frequent as they were in 2022. But the Fed has made it clear that it will not stop this exercise until inflation reaches levels Milder.

In fact, the Fed has specifically hinted at its desire to see inflation fall back into the 2% range. Given the current situation, it is unlikely that we will see an annual inflation rate of 2% for some time. This means that interest rate hikes may continue for a while.

Prepare to spend more to borrow

If you don’t plan to take out any loans in the next year or so, and don’t tend to carry a balance on your credit cards, higher interest rates this year may not affect your finances much. But if you We are If you plan to borrow, you may end up spending more than expected. And in that case, one of the best things you can do is work on increasing your credit score. In this way, you will increase the likelihood that you will qualify for the lowest rate a particular lender can offer.

Now the only good thing about the recent hikes by the Fed is that they have led to higher interest rates on savings accounts and CDs. So while borrowers may be looking to spend more, savers can at least benefit by earning more of the money they put into the bank.

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