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It really depends on what inflation levels look like next year.

Key points

  • The Federal Reserve raises interest rates to fight inflation.
  • If the cost of living starts to drop, this practice could end by or during 2023.
  • Weigh your needs and costs carefully when deciding to borrow money in this time of higher interest rates.

Inflation has been hitting consumers for over a year now. Since mid-2021, many people have had no choice but to loot their savings or rack up huge tabs on their credit cards just to do simple things like put food on the table and keep the lights on.

The Federal Reserve, meanwhile, is doing its part to fight inflation by raising interest rates. But while the Fed’s intentions are good, its actions are also placing a burden on consumers by making borrowing more expensive.

The question is: will the Federal Reserve continue to raise interest rates next year? Or will this practice finally end?

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It all comes down to inflation

How does increasing interest rates help fight inflation? It’s simple: inflation is the result of a mismatch between supply and demand. When there are not enough goods for everyone, prices tend to go up.

By raising interest rates, the Federal Reserve hopes to dissuade consumers from spending money. In this way, it can reduce the gap between supply and demand and hopefully lead to lower inflation.

Meanwhile, the Federal Reserve has raised interest rates by 0.75% in its last three meetings. And this practice could continue until inflation levels begin to moderate.

If that happens in the near term, the Fed could stop raising rates aggressively in 2023. But if inflation doesn’t subside, consumers could find borrowing rates even higher next year. .

What to do if you need to borrow money

Higher interest rates are good for savers with money in the bank. In recent months, savings accounts and CDs have been paying interest more generously than they have in years.

On the other hand, the cost of borrowing has increased across the board. Now consumers are paying more for everything from mortgages to car loans to personal loans.

If you need to borrow money, do some research to see what your most affordable options are. If you own a home, for example, you might find that a home equity loan is a better bet than a personal loan, at least from an interest rate perspective.

At the same time, do your best to boost your credit score or keep an already solid score in good shape. The higher your credit score, the more likely you are to be rewarded with a lower interest rate on the type of loan product you are considering.

Finally, aim to minimize your borrowing. If you’re taking out a home equity loan because you desperately need more living space and need to finish your basement to create some, only borrow what you need for this project. Save extra projects like remodeling your kitchen during a time when borrowing costs are lower.

Only time will tell if the Fed will continue to raise interest rates in 2023. But even if rates don’t continue to rise, it will still pay off to do what you can to borrow money from the once strategically and less often next year.

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