There haven’t been many twists and turns when it comes to the Federal Reserve’s efforts to cool inflation: It promised to raise interest rates and that’s exactly what it’s done for eight straight months. Forecasts by futures and options traders have fluctuated based on the central bank’s comments about high inflation, the recent collapse of Silicon Valley Bank (SVB) and Signature Bank and the distressed sale of Credit Suisse to UBS raising concerns about a potential global banking crisis. While the Fed is likely to raise rates again, according to Wall Street experts, another potential outcome is a pause on further rate hikes, which would mean the interest charged for loans and credit card debt wouldn’t get more expensive. Here’s a look at what traders are predicting.
Fed rate hike expectations keep shifting, but a hike is likely
Powell has said that continued rate hikes will be made on a “meeting by meeting” basis, and that the Fed is also “prepared to increase the pace of rate hikes” until inflation drops down to its benchmark rate of 2%. Just days before SVB collapsed, Powell said the road to lower inflation was “likely to be bumpy.“ If another rate hike does occur, the cost of borrowing could keep increasing throughout 2023, driving up the cost of loans, auto financing and credit card debt.
For some borrowers, interest rates on loans have nearly doubled in the last year, increasing the burden for consumers reeling from high inflation.
With a hike, the average interest rate charged on credit card debt will have grown by nearly 5% since a year ago, to over 20%. Rate hikes are typically reflected in loans and credit cards within weeks of the announcement.