The Fed Meets Again This Month. Is Another Rate Hike in the Cards?
KEY POINTS
- The Federal Reserve has raised interest rates 11 times since March 2022 to cool inflation.
- When the central bank holds its next meeting in late September, it will need to decide whether another rate hike is necessary.
- Additional rate hikes could make the cost of borrowing even more expensive for consumers.
Inflation has been a nagging problem for U.S. consumers for the past couple of years. And the Federal Reserve is determined to do something about it.
The job of the Fed is to oversee monetary policy in the U.S., and its goal is to create and maintain a stable economy. The central bank feels that rampant inflation is not at all conducive to that. That's why the Fed opted to raise interest rates 11 times over the past year and a half.
When the Fed raises interest rates, it tends to drive the cost of borrowing upward. When that happens, consumers tend to start spending less. And a pullback in consumer spending is exactly what's needed to bring inflation down.
The Fed is set to meet again on Sept. 19 and 20. And at that meeting, it will have a very tough decision to make: raise interest rates for a 12th time since March 2022, or let things be. The decision the central bank makes could impact your personal finances, so you'll want to stay tuned to see what happens.
Why another rate hike may be in store
The Fed has come a long way in cooling inflation. In July, the Consumer Price Index, which measures changes in the cost of goods and services, was up just 3.2% on an annual basis. That's not so far off from the 2% annual inflation rate the Fed likes to target for the long term.
On the other hand, 3.2% inflation is not 2%. So the Fed may decide that another interest rate hike is in order to get closer to its goal.
How will another interest rate hike affect you?
The extent to which you'll be impacted by interest rate hikes will depend on whether you have plans to borrow money in the coming months.
If you intend to buy a car, you may get stuck with a higher interest rate on an auto loan if the Fed raises interest rates again. Similarly, if you're thinking of signing a personal loan, your costs could be higher there. And if you owe money on a credit card or HELOC balance with variable interest, another rate hike from the Fed could drive your monthly payments upward. That's something to brace for.
On the other hand, if you're someone with money in savings, another rate hike could work to your benefit in the form of a higher interest rate on your cash reserves. CD rates could rise as well.
In fact, that's why interest rate hikes are such an effective means of fighting inflation. When the Fed needs consumers to stop spending, enticing them to keep more money in the bank with higher interest rates on savings is a good way to go about that.
All told, we don't know exactly what's going to come of the Fed's late September meeting. The central bank might leave interest rates alone, but a small rate hike isn't out of the question. Pay attention to what happens so you know what to expect in terms of borrowing money, juggling your existing debt, and putting cash into the bank.
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