The Fed Is Pausing Rate Hikes: Here's What That Means for You

When Federal Reserve officials gathered to meet on June 13 and 14 to make decisions about monetary policy, it was unclear as to whether the central bank would finally hit the brakes on interest rate hikes. The Fed has raised interest rates at its past 10 consecutive meetings in an effort to cool inflation. And given that inflation is still historically high, it wouldn't have been shocking to learn of yet another rate hike.

But on June 14, the central bank confirmed that interest rate hikes will be paused for the time being. And that's good news for consumers in multiple regards.

Some much-needed relief

In May, the Consumer Price Index, which measures changes in the cost of consumer goods, was up 4% on an annual basis. That's an improvement from previous readings, but it's also not quite at the 2% inflation level the Fed tends to favor in the long run.

But because a nice amount of progress has been made in the course of bringing inflation levels down, the Fed is comfortable leaving interest rates as-is, and not implementing another rate hike. And that's apt to spell relief for consumers.

Over the past year, it's gotten increasingly expensive to borrow money on the heels of the Fed's rate hikes, whether in the form of an auto loan, personal loan, or home equity loan. Credit card interest rates have also been impacted by the Fed's rate hikes, putting an extra burden on borrowers with balances they're desperately trying to pay off. Pausing interest rate hikes gives consumers a bit of a reprieve.

Could a pause in rate hikes be the key to avoiding a recession?

For months on end, financial experts have been warning Americans to boost their savings account balances and gear up for a potential recession. Even the Fed itself has said that a 2023 recession could be in the cards -- though thankfully, the central bank expects it to be a mild one.

A big reason there's been so much recession-related concern is that the Fed's interest rate hikes have the potential to fuel a major pullback in consumer spending. If Americans get fed up with having to spend so much money to borrow, they're likely to start pumping less money into the economy and putting more into their savings, which could lead to a period of general sluggishness and job loss.

However, now that the Fed is pausing rate hikes, it may motivate consumers to keep spending, or to not pull back on spending to a large degree. And that could be the ticket to avoiding a near-term recession and the pain that could come with it.

All told, the Fed isn't necessarily done with interest rate hikes. But for now, it's opting to leave things status quo. Given that this is the first time since March of 2022 that it's happened, it's a move consumers should be thankful for. Whether it does the trick of helping the U.S. avoid a near-term recession, however, is yet to be determined.