Since the middle of this year, it’s been all news about interest hikes in the US. Recent reports on December 14 showed that the Federal Open Market Committee voted to boost the overnight borrowing rate by half a percentage point at 50bps, which made the fed interest rate move to between 4.25% and 4.5% – the highest level so far in fourteen (14) years.
Also, this increase is the seventh rate hike this year, and experts predict that rates could get higher in the coming year, and reduction may not occur until 2024. Of course, this increase will further increase the costs of goods and services nationwide, which also means it’d be costlier for consumers and businesses to borrow for homes, automobiles, and other purchases. If
What You Should Know
“The Fed is raising interest rates for a seventh consecutive time, and they’re not done, with more rate hikes to come in 2023. The pace of rate hikes might be slowing, but we still don’t know just how high the Fed will raise rates and how long they will stay there.” Greg McBride, CFA, Bankrate chief financial analyst.
If we look at this from another angle, it means if you can save some money right now, you’d earn a bit more interest on it. But then, as the interest rates keep going high, economists state that a recession is possible – and if that happens, there’d be lots of job losses, which could worsen the situation of Americans – hardship for households already badly hurt by current inflation, it can only worsen.
Why The Rate Increase?
It’s simple, “Inflation.” From last to this day, consumer inflation has reached a whopping 7.1%—the fifth straight monthly drop but still a painfully high level. The Fed’s goal is to slow consumer spending and reduce demands for purchases such as cars, homes, and other goods and services, which could help in cooling the economy and lowering prices over the long term.
“In November, employers added a healthy 263,000 jobs, and average hourly earnings increased robustly 5.2% annually, up from 4.7% the previous month.” USAToday
According to the Fed Chair, Jerome Powell, “raising interest rates would bring “some pain” for households but that doing so is necessary to crush high inflation.”
What’s Up For Next Year?
Well, we can’t be so sure, and even expert economists are puzzled about the situation in 2023 because the Fed’s inflation forecast doesn’t align with its economic projections.
The Fed is aiming to grow the economy by at least 0.5% in 2023, weaker than the 1.2% it forecasted in September. This also reckons that the 3.7% unemployment rate may rise to 4.6% before 2023 runs off, which is above the previously estimated 4.4%.
Higher unemployment and a softer economy lead to less inflation because there’d not be many shoppers seeking to buy new products or properties, and fewer employers are hiring, curbing pay increases.
Furthermore, despite the forecasts, economists are looking to see the central bank halt the rate hikes sooner if inflation persists.
