When Will the Federal Reserve Stop Raising Interest Rates?

Interest rate hikes have been a pain for many consumers since the Federal Reserve started implementing them in March 2022. Since then, the central bank has raised interest rates 11 times. And with three additional Fed meetings scheduled for 2023, we may not be done with rate hikes in the near term.

Of course, the Fed is apt to stop hiking rates eventually. The question is, when?

Why we may not be done with rate hikes

The Federal Reserve has long maintained that 2% inflation is optimal in the long run. It's this level, the Fed feels, that's most conducive to long-term economic growth and stability. Meanwhile, as per July's Consumer Price Index, annual inflation was sitting at 3.2%. That's reasonably close to the Fed's target -- but not there yet.

To be clear, inflation is looking a lot better than it did in June 2022, when it peaked at 9.1%. But it could still take a while to get from 3.2% to 2%. Think of it like you would a diet. Someone who's looking to shed 40 pounds might lose the first 30 with relative ease. It's those last 10 pounds that are more likely to stubbornly stick around.

Similarly, we've come a long way with inflation since last June, but there's more work to do. And the Fed might continue to raise interest rates until inflation is closer to 2%. Since we don't know when that'll happen, it's hard to say when the Fed will stop raising interest rates. It would be premature to assume that rate hikes won't happen in 2024.

What should you do about rate hikes?

It's important to understand how interest rate hikes might affect your personal finances so you can take steps to protect yourself -- or potentially capitalize on them. Higher interest rates mean it's more expensive than usual to borrow money, whether in the form of an auto loan, personal loan, or home equity loan. Because of this, you may want to hold off on borrowing money if you're able to.

For example, you may be saving money to buy a new car. But now's a pretty bad time to finance one, so if you're able to keep driving an older vehicle for longer, that could be a wise move.

You should also know that interest rate hikes have the potential to drive the cost of carrying a balance on a credit card or home equity line of credit (HELOC) upward. That's because these products tend to come with variable interest rates. So if you owe money on one of these, the sooner you can pay off your balance, the better. And if you can't pay off your balance anytime soon, at least budget for higher monthly payments.

Finally, you can take advantage of today's interest rate environment by putting more money in the bank if you're able to do so. Higher living costs may be making that impossible, and that's understandable. But if you happen to have spare cash, now's a great time to stick it into a savings account or CD so you can score a higher interest rate.

The Fed is apt to stop raising interest rates at some point -- we just don't know when. So it's important to keep tabs on the Fed's actions, especially if you're someone who's looking to borrow money or already owes money on a line of credit.