When will we know if interest rate hikes are working?

(NewsNation) – When the Federal Reserve announced its third interest rate hike since June in its fight against inflation, some may wonder if the rate hikes are actually working.

Despite the food effort, inflation continues to approach 40-year highs and policymakers expect more rate hikes to be needed to dampen consumer demand.

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

“It will probably be 2023 before we can look back and see that we’ve seen material and inflationary pressures continue to decline,” said Greg McBride, Chief Financial Analyst at Bankrate.com.

On Wednesday, the Federal Reserve raised another benchmark short-term rate by 0.75 percentage points, bringing the central bank’s borrowing rate to a new target range of 3% to 3.25% – the highest level since early 2008.

McBride expects the labor market and the broader economy to slow due to the effects of the rate hikes that have been in place for several months.

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There are some indications that the rise in borrowing costs is starting to hit business and consumers alike.

Last week, the average 30-year fixed mortgage rate surged over 6% for the first time since the housing crash of 2008. That’s more than double the rate at this time last year.

As mortgage rates have risen, the once red-hot housing market has responded in kind.

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

Credit card debt rates are also at their highest levels in decades. Today, the average credit card rate is 18.16%, up from 16.21% last year, according to Bankrate.

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

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Auto loans have also grown significantly over the past year, Bankrate found.

The Fed hopes all that upward pressure will help curb demand and reduce inflation, which is rising at an annual rate of 8.3%.

when will the labor market go down?

Despite swirling economic headwinds, the American labor market remains historically tight. The number of job openings peaked at 11.2 million in July, nearly doubling the number of available workers.

The latest unemployment data shows the number of people filing new claims rose moderately last week but is still close to historical figures. This is a sign that the Fed’s efforts to accelerate demand have not had a significant impact on American jobs.

This can be a barrier to lowering inflation, meaning the unemployment rate must rise before prices fall. Fed Chairman Jerome Powell appeared to concede at a press conference Wednesday when he said there was no “painless” way to cut costs.

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Fed policymakers now expect the unemployment rate to rise to 4.4% by the end of next year – up from 3.7% today.

McBride said he was not surprised that the labor market took longer to react to the interest rate hike and expects that to change in the coming months.

“The labor market is a bit of a lagging indicator,” McBride said. “When we get the alarming job report that lets everyone know we’re not in Kansas anymore, we’re going to see a lot of other indicators that are telling us the same thing.”

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

Source : www.newsnationnow.com



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