Update: As expected, the Fed raised interest rates by 0.25% on Wednesday, February 1. Fed Chair Jerome Powell indicated that he does not see the Fed cutting rates in 2023, given the current economic outlook and inflation. But, the slowing pace of the hike to 25 basis points is a sign that the Fed is more confident that the recent rake hikes are doing their intended job of tightening inflation, as seen by recent decreases in consumer prices. Not all is done yet - though. “It would be very premature to declare victory,” said Powell. With the increase, the current Federal Fund Rate stands at 4.75%.
Fed meeting preview
As we look to the next Federal Open Market Committee (FOMC) meeting on Wednesday, February 1, the Fed is expected to raise interest rates by 0.25%, the smallest rate hike in almost a year, since March 2022.
The good news is that despite the hike, the US economy started off the year right by showing signs of cooling inflation. You may have noticed that gas prices are slowly but surely dropping, and there are fewer supplies shortages and shipping snafus compared to pandemic times, which is helping to straighten out the economy.
With this quarter percentage increase, the Fed brings rates to about 4.5-4.75%. So the outlook isn’t exactly rosy – we’re still operating in an environment that has the highest interest rates in nearly 20 years. And according to the Department of Labor, the price of most items from consumer products to medical care is still on the rise. Despite the Fed’s best efforts, the inflation crisis is far from solved.
So, what happens going forward?
Projections from Fed officials say that we’re expecting at least two more rate hikes after the February decision, as previous indications have said that the Fed wants to bring rates up to a target of 5-5.25%.
What does this mean for you?
Even if the US is slated towards a partial economic recovery, it’s best to continue acting conservatively with your finances for now as interest rates continue to rise. This is an ideal time to reign in unnecessary spending, pay down debts and tighten savings.
Here are some other steps to consider:
- Consolidate high-interest debts: If debts are weighing you down, you can consider getting help from a debt consolidation provider – and avoid taking on new debts
- Open a savings account: Set aside an emergency fund, create a budget and most importantly, stick to it
- Invest wisely: Invest in low-cost, diversified index funds rather than risky investments
- Consider refinancing your house: Now is a good time to look at refinancing your mortgages to see if you can get as better rate