Will the Fed Keep Raising Interest Rates in 2023? Here’s What One Financial Company Says

This post may contain affiliate links which may compensate us based on your interaction. Please read the disclosures for more information.

Are more interest rate hikes on the way? Read on to find out. 

The Federal Reserve has been eager to bring inflation down to the 2% mark. It’s that level, the central bank feels, that’s most conducive to strong employment numbers and economic stability and growth.

In March, inflation was up 5% on an annual basis, according to that month’s Consumer Price Index. And while that’s an improvement from last year, during which inflation soared above 9% at one point, it’s still not anywhere close to 2%.

To continue combatting rampant inflation, the Fed has raised interest rates twice this year, each time by a margin of 25 basis points, or 0.25%. But is the Fed done with its 2023 rate hikes? One financial company thinks not.

Consumers should brace for higher borrowing costs

When the Fed raises interest rates, it commonly drives the cost of borrowing up for consumers on a whole. To be clear, the Fed doesn’t establish borrowing rates for products like personal loans and mortgages. Rather, it dictates what the federal funds rate looks like. That’s the rate banks charge each other for short-term borrowing.

But when the federal funds rate increases, borrowing rates tend to follow suit, making it more expensive for consumers to do everything from finance a home purchase to buy a car. And so consumers are generally hoping that rates won’t increase any more this year.

Vanguard, however, expects additional rate hikes from the Fed this year. In a recent report, Vanguard said, “We expect the Fed to raise its rate target by another 75 basis points this year…We don’t foresee rate cuts before 2024.”

Now, this doesn’t mean that the Fed will implement a 0.75% rate hike at its next meeting. Rather, it might raise interest rates by 0.25% several times during the remainder of 2023. But either way, consumers should anticipate the cost of borrowing going up even more.

It’s a good time to put off a large purchase

Because borrowing is likely to remain expensive for the remainder of 2023, it’s generally not a great time to sign a loan. And so if it’s possible to put off a large purchase for another year, doing so could mean avoiding a loan at a higher interest rate.

Of course, this option won’t exist for everyone. If you rely on a car to get to work and yours stops running, you won’t necessarily be able to put off a vehicle purchase for another six months or longer.

But let’s say you’d like to take out a personal or home equity loan to renovate your living space. If your home is perfectly functional without the improvements you have in mind, then holding off could work to your benefit.

Thankfully, inflation isn’t as high today as it was for much of 2022. But the Fed feels it still has work to do, and interest rate hikes are likely to continue until inflation gets closer to or reaches the 2% mark. That’s something consumers should be aware of as they explore their borrowing options.

Our picks for the best credit cards

Our experts vetted the most popular offers to land on the select picks that are worthy of a spot in your wallet. These best-in-class cards pack in rich perks, such as big sign-up bonuses, long 0% intro APR offers, and robust rewards. Get started today with our recommended credit cards.

We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

 Read More