Is the Federal Reserve Done With Rate Hikes for 2023?

U.S. consumers struggled with inflation in 2022. Living costs remained stubbornly high, and there seemed to be no end in sight.

Inflation has managed to cool nicely in 2023. But a big part of the reason stems from the interest rate hikes the Federal Reserve has been implementing since early 2022.

The Fed has raised interest rates 11 times since March of last year, and that's driven the cost of borrowing upward in a very big way. Now, it costs more to sign an auto loan, personal loan, and just about any type of loan. And that extends to borrowers with excellent credit.

At this point, many consumers are tired of the Fed's interest rate hikes and are hoping they'll be over for the year. Seeing as how the Fed opted to not raise interest rates at its last two meetings, there's reason to be optimistic that the central bank is done with rate hikes.

But the Fed still has two more meetings left in 2023 -- one in late October and one in December. And the concern is that the central bank might opt to raise interest rates once more to really bring inflation levels down.

Why the Fed might still feel like it has work to do

In August, the Consumer Price Index, which measures changes in the cost of consumer goods and services, rose 3.7% on an annual basis. But the Federal Reserve has long maintained that it likes to see annual inflation sit at or around 2%. It's this level, the Fed feels, that's most likely to result in long-term economic stability and a healthy economy.

Now the Fed does recognize that persistent interest rate hikes have the potential to drive the U.S. economy into a recession. And a big reason it may have paused its rate hikes at its last two meetings was to avoid that very scenario.

But at this point, it's become pretty clear that a recession isn't likely for 2023. Not only has consumer spending held steady, but the labor market is thriving.

In fact, in September, an impressive 336,000 new jobs were added to the U.S. economy. But the Fed might use a positive number like that as a reason to justify an additional rate hike before 2023 is over. The logic there would be that the economy is strong enough to withstand another rate hike, which might help get inflation closer to 2% sooner.

How to prepare for another rate hike

As a consumer, you may be concerned about how an upcoming rate hike will affect you. So one thing to know is that if you're thinking of signing a loan that can't wait, now may be the time to do it. Wait another month or so, and you may find that borrowing costs are even higher on the heels of another rate hike.

It's also a good time to try your best to whittle down an existing credit card balance. Credit card interest rates tend to be variable, so another rate hike on the Fed's part could leave you spending more money on your debt than you want to.

On a positive note, an additional rate hike could lead to more generous interest rates for savings accounts. So if you happen to have extra cash at your disposal, it could be a good time to look at putting it into the bank. And also, if the Fed does raise interest rates, pay attention to CD rates, as late 2023 could end up being a good time to lock up your money for a period of time.

We don't know whether the Fed will raise interest rates again this year or let things be. It's easy enough to make the argument for either option. So for now, the best we can do is wait for an announcement and prepare our finances accordingly.