The Fed Plans to Continue With Interest Rate Hikes Despite Cooling Inflation

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  • Inflation slowed in October compared to September.
  • In spite of that, the Federal Reserve insists that more interest rate hikes are necessary.
  • That's apt to drive the cost of borrowing up even more.

That's not great news for consumers.

U.S. consumers have been grappling with sky-high inflation for well over a year. But a few weeks ago, they finally got some good news. The Consumer Price Index (CPI) for October came in at 7.7%, which is quite high, but not as high as the readings registered for several months prior.

In fact, October's CPI reading has been taken as a sign by many that inflation could finally be starting to cool. And that could put an end to the aggressive interest rate policies the Federal Reserve has adopted this year.

But maybe not. In a series of speeches during the week ending Nov. 19, Federal Reserve officials made it clear that they're not looking to pull the plug on interest rate hikes anytime soon. Rather, the central bank feels it still has a lot of work to do in its fight against inflation, and interest rate hikes seem to be the best solution. 

Unfortunately, interest rate hikes have the potential to hurt consumers. And so if you have any near-term plans to borrow money, you may want to do so really soon -- before it costs you more.

Sign that loan before it's too late

The Federal Reserve doesn't directly set consumer borrowing rates like mortgage and personal loan rates. Rather, it oversees the federal funds rate, which is the rate banks charge one another for short-term borrowing purposes. 

But when the Fed raises its benchmark interest rate, it indirectly raises borrowing costs for consumers. And given that the Fed is now doubling down on interest rate hikes, it may be a good time to get moving on a loan application -- before it gets even more expensive to borrow. 

In light of the Fed's plans, now's also a good time to look at the debts you have with variable interest rates attached to them -- and, ideally, make plans to whittle those balances down. If you owe money on a home equity line of credit (HELOC), for example, the rate on that debt could soar in 2023, so the sooner you're able to pay it down, the better. 

The same holds true for any credit card balances you're carrying. That debt, too, could become costlier in 2023. 

Plus, the less credit card debt you have relative to your total spending limit, the less damage it causes to your credit score. And a high credit score is a crucial thing to have during today's volatile borrowing environment. 

When will interest rate hikes come to an end?

Based on this recent messaging, it's pretty clear that the Fed intends to keep raising interest rates until it sees a notable drop in inflation. We don't know when that's going to happen, so it's best to assume that borrowing will remain expensive for the next quarter or so. 

If you need a loan, you may want to apply sooner rather than later. Or, better yet, you may want to see if there's a way to avoid taking on more debt right now, whether by reworking your budget, boosting your income with a second job, or putting off large purchases or expenses you don't have to take on at this moment.

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