The Federal Reserve Paused Its Interest Rate Hikes. Here’s Why That May Not Last

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Consumers were spared an interest rate hike in June. But read on to see why more rate hikes could be in the cards. 

When the Federal Reserve met in mid-June, many consumers were worried that that gathering would result in yet another interest rate hike. The Fed has raised interest rates 10 times in a row since March of 2022, and those rate hikes have driven up the cost of consumer borrowing, to the point where personal loans have become prohibitively expensive to sign.

But at its most recent meeting, the Fed made the decision to pause its interest rates hikes in light of cooling inflation. And that no doubt helped many consumers breathe a sigh of relief.

However just because the Fed opted not to raise interest rates at its last meeting doesn’t mean it will uphold that decision at future meetings. The central bank still has a ways to go in the battle to slow inflation. And one Fed official is pretty adamant about the fact that more rate hikes are in the cards.

Rates could rise again

Although the central bank gave consumers a reprieve from interest rate hikes in June, future hikes are something Americans ought to gear up for. CNN reported that just days after the Fed’s last meeting, Fed Governor Christopher Waller and Richmond Fed President Thomas Barkin both said that additional rate increases are needed to bring inflation down to 2%.

In May, annual inflation was measured at 4%, as per that month’s Consumer Price Index. But the Fed has long maintained that 2% inflation is a more ideal target, and one that lends to economic stability. As such, it’s conceivable that the Fed might raise rates again this year, driving the cost of borrowing up even more.

You may not want to wait on that loan

Since more near-term interest rate hikes are still a distinct possibility, you may want to move quickly if you’re in the market for a loan you know you can’t delay for a year or more. If rates go up again this year, that could make a near-term loan more expensive, so it pays to start shopping around now, whether you’re seeking out a home equity loan or an auto loan.

Of course, if you are able to put off borrowing for a period of time, that’s even better. We might see inflation creep back down to 2% by the end of 2023 or early 2024, at which point the Fed is likely to pause rate hikes or even look at cutting rates. But until we get there, the cost of borrowing is apt to be high.

To be clear, the Fed puts a lot of thought into interest rate hikes because the central bank is well aware that too aggressive a stance could lead to a major pullback in consumer spending. And that, in turn, could easily fuel a broad economic recession, which the central bank certainly does not want.

But just because consumers got a break from interest rate hikes in June doesn’t mean more aren’t coming. That’s something to be aware of as you make financial decisions — especially those that relate to borrowing money.

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