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Federal Reserve once again raised interest rates by 75 basis points on Wednesday. This was the third consecutive 75 basis point rate hike and the fifth rate hike this year.

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The move comes as the Fed continues to grapple with high inflation, which reached 8.3% year-on-year in August. It was a slight improvement from July, but still near the 40-year high set earlier this year and well above the central bank’s preferred annual average of 2%.

The increase in the federal funds rate also raises interest rates on products such as personal loans, home loans, student loans and credit cards.

The rate hike brings the federal funds rate to a target range of 3% to 3.25%, and the Fed said it expects further rate hikes on the horizon as it is “strongly committed to bringing inflation back to its 2% target.”

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Can the Fed bring inflation down quickly?

While the Federal Reserve is maintaining its monetary policy and forecasting further rate hikes, it has indicated that inflation may take longer to come down than previously thought.

“At 3%, the rate is now above what most FOMC members consider the long-term level and should be effective in reducing demand and slowing inflation over time,” Mike Fratantoni, senior vice president and head of the Mortgage Bankers Association (MBA). economist,” the statement said.

“Forecasts by FOMC members point to slower growth, a slow slowdown in inflation and a federal funds rate that is likely to exceed 4%,” Fratantoni said. “A surprise for the market could be the average expectation that they could raise rates to 4.4% by the end of this year.”

The Federal Open Market Committee (FOMC) raised its interest rate forecast by the end of the year, showing that the decline in inflation may be a longer process than originally thought. FOMC members raised their year-end interest rate forecasts from 3.4% to 4.4% and expect rates to remain at or above 4% through 2024.

“Focusing on the Fed’s interest rate decision completely misses the point,” Morning Consult chief economist John Lear said in a statement. “FOMC members have significantly increased their forecasts for inflation, unemployment and interest rates for the next two years and lowered their forecasts for GDP growth. Even the Fed is becoming less confident in its ability to achieve a soft landing.”

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Is there a recession on the horizon?

In parallel, negative GDP numbers in the first half of 2022 have sparked some debate about whether the US is in a recession. Typically, economists consider a recession after two consecutive quarters of negative GDP growth. But the White House said that maybe not so in this case.

National Bureau of Economic Research defines a recession as “a significant decline in economic activity that extends to the entire economy and lasts for more than a few months.” The bureau usually waits up to a year to announce the start of a recession.

If the US is not currently in recession, the continued rise in interest rates could soon trigger one, one expert said.

“High interest rates limit consumption and investment activity, driving up the cost of borrowing,” said Dawit Kebede, senior economist at the National Credit Union Association (CUNA). said in a statement. “This is slowing the economy and increasing the chance of a recession, given that GDP has declined over the past two quarters.

“The move will also raise the unemployment rate from its current low level,” Kebede continued. “The intention is to create some slack in the labor market. Currently, the demand for labor exceeds the supply, which leads to faster wage growth, which adds to inflationary pressures.”

If you want to take advantage of interest rates before they rise even more, you may want to consider refinancing your mortgage to potentially lower your interest rate and reduce your monthly payment. To see if this option is right for you, contact Credible to speak with a mortgage loan expert and get all your questions answered.

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