Will the Fed Keep Raising Interest Rates in 2023?

It's something consumers should gear up for.

For pretty much all of 2022, consumers were forced to grapple with soaring inflation. And as a result, many depleted their savings and racked up debt just to stay afloat.

The Federal Reserve, meanwhile, implemented a series of aggressive interest rate hikes in 2022 in an attempt to bring inflation down to a more moderate level. The Fed doesn't set consumer borrowing rates, like auto loan or mortgage rates. Rather, it oversees the federal funds rate, which is the rate banks charge each other for short-term loans.

But when the federal funds rate goes up, consumer borrowing rates tend to follow suit. And as it becomes more expensive to borrow, consumers are likely to cut back on spending.

That's what the Fed is banking on. It wants consumers to start spending less so the supply of available goods can catch up to demand. Once that happens, it should help inflation soften and give those who have been cash-strapped some relief.

But while the Fed might have good intentions with regard to its rate hikes, the reality is that those can be brutal for consumers. These days, it costs more money to borrow in just about any form, whether it's a credit card or personal loan. And so consumers are probably tired of rate hikes at this point. Unfortunately, though, we may not be done with them -- even though the pace of inflation has indeed slowed down.

Expect more rate hikes in 2022

As of the end of 2022, the rate of annual inflation was around 7%. That's better than during the summer of 2022, when inflation peaked at around 9%. But 7% is still an extreme level of inflation. And the Fed is by no means satisfied with the progress that's been made on the inflation front.

As such, we can expect the Fed to keep moving forward with rate hikes in 2023. Those rate hikes may not be as steep or as frequent as they were in 2022. But the Fed has made it clear that it won't be halting that practice until inflation reaches more moderate levels.

In fact, the Fed has specifically alluded to wanting to see inflation fall back into the 2% range. Given where it's at right now, we're unlikely to see a 2% annual rate of inflation for quite some time. And that means interest rate hikes may be with us for a while.

Prepare to spend more to borrow

If you're not planning to take out any loans in the next year or so, and you don't tend to carry a balance forward on your credit cards, then interest rate hikes this year may not impact your finances so much. But if you are planning to borrow, you may end up spending more than expected. And so in that case, one of the best things you can do is work on boosting your credit score. That way, you'll at least make it more likely that you'll be eligible for the lowest rate a given lender can offer.

Now the one good thing about the Fed's recent rate hikes is that they've led to higher interest rates on savings accounts and CDs. So while borrowers may be looking at spending more, savers can at least benefit by virtue of earning more on the money they have tucked away in the bank.