Another Mega Interest Rate Hike is Coming—What this Means for Your Finances

Americans should prepare their finances for even higher interest rates this year as the Federal Reserve continues its fight against inflation.
Although the Fed has increased its benchmark short-term fed funds rate by 3% this year, with the last three rate hikes at a whopping 75 basis points each, consumer inflation continues to linger near a 40-year high.
It also is expected to telegraph more rate hikes to come as it focuses on combating inflation, so consumers should expect their costs to head even higher and job losses to mount as economic growth slows.
Although the Fed doesn’t directly control consumer interest rates, its rate increases ripple through the economy and ultimately, hit businesses and consumers and slow demand and inflation.
“Given the environment of rising rates and a slowing economy, the financial steps for households to take are boosting emergency savings, paying down high-cost debt, and maintaining contributions into, and a long-term perspective on, retirement accounts,” Greg McBride, Bankrate chief financial analyst, said.
How high will interest rates go?
The Fed's expected to raise rates Wednesday by 75 basis points, which would mark the fourth consecutive increase of that size.
And likely that won't be the end. The Fed's year-end median fed funds forecast is 4.4% and 4.6% next year before heading lower, according to its economic projections. That means there’s likely another rate increase coming at the Fed meeting in December.
Economists generally expect the Fed to slow its rate hikes in December with a half-point rise to get inflation closer to its 2% target, but another 0.75% hike isn’t out of the question. Deutsche Bank analysts, for now, expect a fifth consecutive supersized 0.75% rate increase in December.
In September, overall annual inflation dipped to an 8.2% pace from August's 8.3%, but the core rate without the volatile food and energy sectors rose 6.6%, from 6.3% the prior month and the largest increase since August 1982. Both topped economists' mean forecast and unleashed worries that inflation's getting entrenched in areas that'll be harder to control if the Fed doesn't act faster.
How does this affect my plans to buy a house?
Homeowners with existing fixed-rate mortgages won’t see any changes. But recent and prospective homebuyers are being socked by higher rates that take into account projected Fed increases through 2022.
"The speed at which mortgage rates have risen is more destabilizing than the actual level of rates,” Yelena Maleyev, KPMG economist, said. “We have seen mortgage rates higher than 7% before, but we never have seen rates double in a matter of months. “
The average rate for a 30-year fixed-rate mortgage in the week ended Oct. 21 was 7.16%, the highest rate since 2001, according to Mortgage Bankers Association (MBA).
That's dampened borrower demand for both mortgage purchases and refinances. For the week ending Oct. 21, mortgage applications fell 1.7% to the slowest pace since 1997, MBA said. Refinance applications were essentially unchanged, but purchase applications declined 2% to the slowest pace since 2015 and more than 40% behind last year’s clip, it said.