JPMorgan CEO Says Fed May Raise Interest Rates to 6%

What happened

JPMorgan CEO Jamie Dimon said the interest rate needed to slow inflation to where it needs to be "may very well be 6%" in an interview with FOX Business' Maria Bartiromo Tuesday. The current Federal Reserve interest rate, also known as the federal funds rate, is 4.25% to 4.5% as of Dec. 14, 2022. That's a 15-year high.

In January 2022, Dimon was one of the first people on Wall Street to predict that the Fed could hike interest rates six or seven times. He was proven correct, as the Fed raised interest rates seven times for a total increase of 4.25% in 2022 in an effort to reduce rampant inflation. He now believes that Fed officials should raise rates to 5%, and then wait three to six months to see the impact.

So what

The federal funds rate has a significant influence on the economy and, in turn, on consumers and businesses across the country.

Higher interest rates make it more expensive to borrow money. That's a concern for people who are planning to get a mortgage, auto loan, or any other type of financing in the near future. It's also bad news for consumers with credit card debt, because most credit cards have variable APRs tied to the federal funds rate. This means as the federal funds rate rises, so does the amount of credit card interest consumers pay. While interest rates have already risen quite a bit, a jump to 6% would be even harder on borrowers.

Interest rate hikes discourage consumer spending, and that could spur a recession. Although spending has remained strong so far, Dimon believes that it could be due to stimulus money being "so large and still largely unspent."

Now what

Because interest rates are rising and could continue to rise, be very careful about taking on new debt. If you can, avoid borrowing money entirely. If you do need a loan for a big purchase, such as a home or car, make sure to compare rates and consider putting more money down, if possible.

Another smart financial step to take right now is to pay off credit card debt. Since most credit cards have variable APRs, any card balances will cost you more money as interest rates increase. A good way to mitigate this is opening a balance transfer credit card. This type of card has a 0% intro APR on balance transfers, so you can use it to refinance debt and pay it down interest-free.

Hopefully, interest rates don't get too much higher this year. But if you avoid taking on debt and you keep your credit cards paid off, you'll at least be able to limit how much rate hikes affect your own personal finance.