What's next for US interest rates?

The Federal Reserve left interest rates unchanged in October, marking the second consecutive month that it has held off on raising rates while keeping a watchful eye on the American economy and the path of inflation. That said, there is a chance that the Fed will raise interest rates once more before the year is up — "investors think there's about a one-in-four chance that the Fed will raise rates in December during the Open Market Committee's final meeting of the year," NBC News reported, citing the CME Group's Fedwatch tool. 

For now, however, the central bank's benchmark interest rate remains where it's been since July, between 5.25% and 5.50%, which marks the highest it's been in 22 years.

What will the Fed do next?

It's not clear just yet whether the Federal Reserve will raise interest rates one last time this year at its mid-December meeting. Per Reuters, Federal Reserve Chair Jerome Powell has "left the door open to a further increase in borrowing costs in a policy statement that acknowledged the U.S. economy's surprising strength but also nodded to the tighter financial conditions faced by businesses and households."

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Some forecasters contend that if the Fed leaves rates untouched once again in December, then that means it's done with rate hikes for now. However, Powell contradicted that prediction at October's press conference, deeming "the idea that it would be difficult to raise again after stopping for a meeting" as "just not right," according to The New York Times. Still, per the Times, Powell did indicate that "Fed officials believe that they are close to the end of the cycle, and are now proceeding carefully."

One thing that's definitely not on the table at the moment is rate cuts. Powell said at the press conference that the committee is "not thinking about rate cuts right now," the Times reported. That said, a number of experts predict that rate cuts could begin "sometime in the middle of next year," per the Times.

When is the next interest rate decision?

The Federal Reserve's final meeting for 2023 will take place on Dec. 12-13, when it's slated to release updated economic projections. It's not yet clear whether the Fed will raise rates again in December.

How do interest rates affect the economy?

The Fed uses interest rates "like a gas pedal and a brake pedal," Forbes explained. Lowering rates stimulates the economy; raising rates slows the economy down. The agency doesn't actually set the funds rate — banks do that — but "the Fed assumes that banks will use it as a floor in their own lending," Forbes added.

Rate changes usually take "at least 12 months" to have "widespread economic impact," Investopedia explained. But the stock market reacts immediately. For example, when Fed chairman Jerome Powell signaled in early March that further interest rate hikes were likely, the market went into a bit of a tailspin. The major indexes each fell more than 1%. Beyond stocks selling off, "Treasury yields rose and the dollar extended again after Powell's comments," Reuters reported.

What do rate hikes mean for your wallet?

As Kiplinger puts it, "rate hikes are a blessing and a curse for consumers." When the Fed raises rates, consumers will pay higher interest rates on debt like credit cards, home equity lines of credit, and private student loans. However, on the flipside, savings rates also tend to increase. In the face of rate hikes, Kiplinger offers the following pieces of advice:

• Pay off any debt. Aim to pay off your debt before interest rates get any higher. While the impact might feel gradual initially, continued increases ultimately can make paying off debt more challenging.
• Lock in rates if you can. For those with a home equity line of credit, consider locking in a lower rate on all of a portion of your balance.
• Take advantage of top savings rates. Finally, take advantage of increasing savings rates. Kiplinger advises consumers that they'll usually find the best rates at online banks or other online financial institutions, including the ones in the table below.

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Becca Stanek has worked as an editor and writer in the personal finance space since 2017. She has previously served as the managing editor for investing and savings content at LendingTree, an editor at SmartAsset and a staff writer for The Week. This article is in part based on information first published on The Week's sister site, Kiplinger.com

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