Why one expert predicts more rate hikes before inflation slows and how to prepare

Inflation has been a top concern for many Americans this year.

The Federal Reserve has tried in the past few months to raise interest rates to curb runaway inflation, but a new report shows that inflation rates for many daily expenses, including food, housing, health care, utilities, etc. has been shown to be still very high.

As the Federal Reserve’s next rate decision (and another expected rate hike) draws near, one expert predicts there’s “a long way to go”. Kimberly Howard, a certified financial planner and founder of KJH Financial Services, a financial planning firm based in Massachusetts and Colorado, believes the Fed will continue to raise rates not only this year but through his fall of 2023. I expect. Howard says.

Given the Fed’s commitment to raise interest rates until inflation picks up, it could take a long time for prices to stabilize.

“I think we have a lot of pain ahead of us,” she says.

rising interest rates

Since March, the Federal Reserve has raised its target range for the federal funds rate four times to bring inflation down to its target of 2%.

But this won’t happen overnight, and the combined 2% rate hikes so far this year have done little to keep inflation under control. The latest consumer price index shows that inflation is still up by more than 8% year-on-year.

“It’s supply and demand. There’s not enough supply for all the demand,” says Howard. “People are seeing it everywhere. You go to the grocery store and it’s so expensive to buy everything. Prices of all kinds of things have gone up.”

Interest rates need to rise before these prices stabilize, experts say.

Federal Reserve Chairman Jerome Powell said in a speech last month, “Higher interest rates, slower growth and a weaker labor market will lower inflation, but will also cause some pain to households and businesses. will bring about,” he said. “Restoring price stability will take some time and will require a strong use of tools to better balance supply and demand.”

When the Fed gets its next chance to raise rates later this week, pundits like Howard expect another big rate hike. “I think they’ll definitely get at least 75 basis points again,” he says. “It could even be 1%.”

A full rise in the percentage would raise the Federal Funds Rate to the target range of 3.25% to 3.50%. Interest rates haven’t been much higher since January 2008, after the rate hike in response to the housing crisis last year.

How to prepare for higher interest rates

Howard predicts interest rate hikes could continue until the end of next year before authorities can cut prices.

Stubborn inflation and rising interest rates make everything from mortgage rates to running a grocery store more expensive. But there is at least one silver lining for those who can maintain or build an emergency fund. Interest rates on savings accounts are also rising. This means that the amount of money you can earn in savings is increasing, with the highest savings account rate now reaching over 2% of his APY.

So I have one piece of advice from Howard. A well-stocked emergency fund can help you weather both unexpected expenses and periods of financial instability.

Howard says it’s best to keep your money in a liquid bank account. A high-yield savings account provides a solid return on your savings, but it’s also a sure bet if you need the money in an emergency. “You may not get much at once [high-yield] A savings or checking account may not earn you much, but at least it’s safe and stable in the short term. ”