Why Will Interest Rates Continue to Rise in 2023?

Unemployment is dropping to near record-low levels, the inflation rate has declined in the past two months, and energy prices are coming down. All three of these are signs of a pretty healthy U.S. economy.

If that’s the case, why do interest rates continue to increase for mortgages, credit cards, and other short-term loans?

Blame the Fed?

The Federal Reserve (Fed), headed by Chairman Jerome Powell, will be meeting for the first time in 2023 at the end of the month, and interest rates are again expected to be bumped up anywhere from 0.25% to 0.50%.

Powell repeatedly states that until the inflation rate drops to an “acceptable level,” interest rates will continue to be raised. And what is an “acceptable level?” The Fed generally recognizes 2% annual inflation as a healthy inflation rate.

However, the annual rate at the end of November 2022 was 7.1%, which is not even close to being considered acceptable.

How long will it take for inflation to begin a more rapid descent and bring interest rates down with it?

Ask ten different economists, and you’ll get ten different answers. No one, no matter how brilliant their economic mind, can predict future geo-political events and their impact on energy prices or how they’ll affect the still-disrupted supply chain.

How can you help yourself?

Most financial experts agree that interest rates will continue to rise at least through the first half of 2023.

You can help your own cause by paying off your high-interest credit card debt and taking advantage of putting your money into high-yield CDs and savings accounts, which are paying the highest interest they have in years.

Your increased savings may also come in handy if we do enter into a full-blown recession. If a recession becomes a true disrupter of our economy, you can then reasonably expect the inflation rate to decline rapidly and interest rates to follow suit.

It’s not exactly the ideal cause of falling interest rates that you’d like to see, but it’s an indicator that you should fasten your seat belt for a bumpy financial ride in 2023.

 

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Bob P