The Federal Reserve has once again taken action to combat surging inflation, announcing a 25 basis point interest rate hike following a pause in June. This marks the 11th rate increase in 2022 and 2023, aiming to bring inflation down to the target 2%. With the new announcement, the federal funds rate will now fall within the range of 5.25% to 5.5%, reaching its highest level in 22 years.

While the rate hike was not unexpected due to Fed Chairman Jerome Powell’s consistent remarks about addressing inflation, the big question on everyone’s mind is whether more increases are on the horizon. Keeping Current Matters Chief Economist, George Ratiu, suggests that the Fed’s actions have had a positive impact on curbing inflation, but the focus remains on reaching the 2% target.

CoreLogic Chief Economist, Selma Hepp, predicts at least one more rate increase before the year concludes, as the Federal Reserve maintains an aggressive stance to ensure its monetary policy effectively keeps inflation in check for consecutive quarters.

Fed’s Hike and Its Impact on the Economy

Amid the series of interest rate hikes, the U.S. economy has demonstrated resilience. The Bureau of Economic Analysis reported a 2% increase in real gross domestic product (GDP) during the first quarter of 2023. Additionally, the unemployment rate for June remained stable at 3.6%, which aligns with the levels seen when the Fed began raising rates in March 2022. Powell noted that the unemployment rate may rise further to meet the 2% target.

The challenge now, as inflation starts to show signs of easing, is finding the right balance between doing too little or too much, according to Powell. With the next meeting scheduled for September, the Fed will closely monitor economic reports to determine the need for another rate hike.

Impact on Consumers and Borrowing

TransUnion’s Vice President, Michele Raneri, believes that the Fed’s decision to raise interest rates indicates its reluctance to completely withdraw from its restrictive monetary policy until inflation cools down significantly. Consumers should expect higher borrowing costs as interest rates rise.

Homebuyers may face obstacles in affordability, given the continuous rise in mortgage rates. Hepp predicts that the housing market will encounter headwinds for the rest of 2023, with homebuilders struggling to meet demand and mortgage rates likely to remain in the 6% to 7% range.

Buyers may postpone home purchases until interest rates stabilize or decrease, waiting for more favorable conditions. Cooling inflation might motivate consumers who have hesitated due to increasing living expenses, but it remains to be seen.

Impact on Credit Cards

Credit card interest rates are expected to stay high, with an average rate of 24.52% for new credit card applicants. Raneri advises consumers to be cautious when using credit cards, especially for late summer travel, back-to-school shopping, or household expenses. Responsible financial planning, including considering the ability to make monthly payments, is crucial.

Smart Moves in a High-Interest Environment

Struggling amidst rising inflation? One smart move is to consider a personal loan to consolidate debt at a lower interest rate, leading to potential savings each month. Credible offers personalized interest rates without affecting your credit score.

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In conclusion, the Federal Reserve’s interest rate hike reflects its ongoing commitment to combat inflation, with further increases likely in the future. While the economy has shown resilience, consumers should brace for higher borrowing costs. The impact on housing affordability and credit card rates demands careful financial planning to navigate these challenging times successfully.

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