When will Americans know if the Fed’s interest rate hikes are working?

When will Americans know if the Fed’s interest rate hikes are working?

(NewsNation) – As the Federal Reserve announces its third interest rate hike since June in its battle against inflation, some may be starting to wonder if the rate hikes are really working.

Despite the Fed’s efforts, inflation remains close to 40-year highs and policymakers expect further rate hikes to be needed to cool consumer demand.

But experts say the results of these actions could still be months away.

“It will likely be 2023 before we can look back and see if we’ve seen any material and sustained declines in inflationary pressures,” said Greg McBride, chief financial analyst at Bankrate.com.

On Wednesday, the Federal Reserve raised its short-term benchmark rate by another 0.75 percentage point, pushing the central bank’s lending rate to a new range of 3% to 3.25% – the highest level since the beginning of 2008.

McBride expects the job market and the economy in general to decelerate as the effects of rate hikes take hold in the coming months.

There are some indications that this has already begun to happen as the rising cost of borrowing hits businesses and consumers.

Last week, the average 30-year fixed mortgage rate rose above 6% for the first time since the 2008 housing crisis. That’s more than double the rate last year.

As mortgage rates soared, the once red-hot housing market responded in kind.

After a strong year in 2021, existing home sales fell, falling for the seventh straight month in August, according to data from the National Association of Realtors.

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Credit card borrowing rates are also at their highest levels in decades. Today, the average credit card rate is 18.16%, compared to 16.21% in the same period last year, according to Bankrate.

Federal Reserve data shows that total credit card balances are now at a record $900 billion, although that figure is not adjusted for inflation, according to the Associated Press.

Auto loans have also increased substantially in the past year, according to Bankrate.

The Fed hopes that all these upward pressures will help to contain demand and reduce skyrocketing inflation, which is at an annual rate of 8.3%.

when will the job market slow down?

Despite economic headwinds, the US job market remains historically tight. The number of job openings topped 11.2 million in July, almost double the number of available workers.

The latest unemployment data shows that the number of people filing new claims rose moderately last week, but still remains close to historic lows. It’s a sign that the Fed’s efforts to cool demand have yet to substantially impact US jobs.

This can be an obstacle to reducing inflation, meaning unemployment rates may have to rise before prices fall. Fed Chairman Jerome Powell appeared to recognize this at a news conference on Wednesday, when he said there is no “painless” way to cut costs.

Fed policymakers now project that the unemployment rate will rise to 4.4% by the end of next year – up from the current 3.7%.

McBride said he is not particularly surprised that the job market is taking longer to react to interest rate hikes and expects that to change in the coming months.

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“The labor market is a bit of a lagging indicator,” McBride said. “By the time we get the alarming jobs report that makes everyone realize we’re not in Kansas anymore, we’ll have seen a bunch of other indicators that have already told us the same thing.”

Fed officials expect to raise the benchmark interest rate to about 4.4% by the end of the year, a point higher than they had forecast in June.

Source : www.newsnationnow.com

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