Fed Ends Rate Hike Streak, Pausing for the First Time in 15 Months. What’s Next? – CNET

After 10 consecutive rate hikes, the Federal Reserve will hold rates steady this month, leaving the target federal funds rate at a range of 5.00% – 5.25%.

“Holding the target range steady at this meeting allows the Committee to assess additional information and its implications for monetary policy,” the Federal Reserve said in a press release.

Though another Fed rate hike was possible this month, Fed Chair Jerome Powell hinted at the pause during last month’s Federal Open Market Committee meeting (PDF).

“I think we’ve moved a long way fairly quickly,” Powell said. “And I think we can afford to look at the data and make a careful assessment.”

With rate hikes ranging from 25 to 75 basis points over the past 15 months, most experts predicted the Fed would hold on rate hikes, particularly after inflation showed signs of slowing. Inflation is now at 4% year over year, according to the latest consumer price index report — significantly lower than June 2022’s record high of 9.1%. Slowly but surely, inflation has been inching downward.

This latest rate hike pause is uncharted territory. Though inflation has slowed, it still remains higher than the Fed’s 2% target goal, which means there’s still work to be done to reach the goal, hinting that there’s the potential for another rate hike later this year. For now, experts are urging consumers to beef up their emergency savings and work to pay down any high-interest debt. 

Below, we’ll unpack what this pause in rate hikes means for your money and how you can prepare for what’s next. 

Is this the end of the Fed’s rate hikes?

Only time will tell whether the Fed will continue pausing rates or simply skip this month to evaluate different economic factors and determine what to do next. Some experts already predict that the pause will likely end this fall. 

“I don’t think the Fed will pause for very long as inflation remains high and unemployment remains low,” Stuart Caplan, chief investment officer at Apex Financial Advisors, previously told CNET. If the Fed resumes rate hikes, we’ll see 25 basis point increases at best, he predicts. 

July’s inflation data, as well as unemployment numbers, will likely play a significant role in the Fed’s next move. And if inflation continues trending down, experts warn we’re not out of the woods yet. A recession — albeit likely a milder one — is still likely, which makes now a good time to build up an emergency fund in a high-yield savings account and pay down debt. 

Here’s what to know about interest rates to help you make smart financial decisions to prepare for what’s ahead.

Savings accounts will remain at an all-time high

Some banks have increased interest rates for high-yield savings accounts within the past week, ahead of the Fed’s news. And though the federal funds rate isn’t increasing, there’s a chance that banks could push rates higher to remain competitive for deposit accounts. However, since banks pay the federal funds rate for borrowing, you shouldn’t expect your rate to exceed the current range of 5.00% – 5.25%. 

Regardless of what happens to savings rates next, now is still a good time to set aside money, if you can, and earn a solid return on it. Since inflation remains high and experts still predict a mild recession, your savings could prove vital whether inflation persists or the economy slows. Plus, the interest you earn can offer a nice cushion to money you’re already saving. 

It’s time to lock in a long-term CD

Right now, rates for certificates of deposit, or CDs, are experiencing an inverted yield curve, experts say. Normally, long-term CDs, like three- or five-year CDs, have higher APYs than shorter-term CDs, like six-month and one-year CDs. But right now, short-term CDs have higher APYs than longer terms, creating this inverted yield curve. When this happens, you can expect the curve to normalize at some point — meaning shorter-term CD rates will drop below longer-term CDs. No one knows exactly when, but it’s clear that we’re getting closer. 

Most banks aren’t raising rates for long-term CDs, and many experts believe they’re as high as they’re going to get for the next few months. So if you’re considering a long-term CD to give you some extra cash on your savings, now’s the time to compare rates. Since these rates likely won’t change significantly anytime soon, experts suggest locking them in now before rates drop. Otherwise, you may miss out on a better return. 

Borrowing will continue to be expensive 

Just because the Fed isn’t raising rates right now, it doesn’t mean that rates for personal loans, home equity loans or credit card debt will start going down. In fact, they’ll likely remain high, which means your debt can continue to grow if you’re not actively working on a strategy to pay it down. A debt consolidation loan can help consolidate high-interest debt into a lower, fixed-rate loan, while a balance transfer card can offer a respite from interest for a period of time.

More importantly, if you’re taking on new debt, make a plan to pay more than the minimum each month to kick down some of the interest that can accrue. Compare lenders to get the best rate possible. And if you’re looking for a new credit card, make sure not to spend beyond your budget and pay your bill in full each month to avoid high interest charges altogether. And if you’re one of the millions of people with federal student loan debt preparing for repayment in September, focus on paying off other debts or boosting your savings with a high-yield savings account to get yourself ready for repayment.

Regardless of what the Fed does next, now’s the time to closely examine your finances — including your emergency fund, outstanding balances and any financial goals you plan to reach soon. There’s still plenty of time to take advantage of the high savings rates, but since the cost of borrowing will also remain high, work to pay down any outstanding balances as soon as possible.