After inflation: Timeline for lower prices and interest rates

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Let’s assume the Federal Reserve knows what it’s doing.

Central bank slowing economy with painful chain interest rate hike, Its goal: to offset the current 8.3% year-over-year increase in consumer prices, bringing them to the Fed’s 2% target.

With five such interest rate hikes this year, many of us may wonder: What’s next?

Be Prepared for Another Year of Higher Interest Rates—and Prices

Most analysts agree — and as much as Fed Chairman Jerome Powell has said — interest rate hikes are still a long way off. Short-term rates are currently around 3% and the Fed is targeting 4% to 4.5%, so additional rate hikes will continue until early 2023.

“Higher interest rates, slower growth and softer labor market conditions will reduce inflation, but they will also bring some pain to households and businesses,” Powell said at an economic policy symposium on August 26. inflation.”

So when is it better?

Here’s how things turn out as we take inflation out of the economy:

by the end of 2022

Look for two more interest rate hikes by the Fed in November and December.

it means Cost of money for home purchase and refinance Likely to be more expensive until inflation subsides. While current 30-year mortgage rates of about 6% are well below the half-century average of about 8%, we are unlikely to see much of a turn around in the next 12 to 18 months.

in 2023

Another interest rate hike is likely next year — and at that point, the Fed may stand pat, given how the tight money supply affects the economy and most importantly, consumer prices.

Employment will moderate as the pandemic eases after an extended period of solid job growth. There are chances of layoffs and corporate cuts. There would be less talk of “great resignation” or “quiet quit”.

A key voice in the recession-warning crowd is Doug Duncan, chief economist at Fannie Mae, a government-sponsored company that finances the home mortgage market. He expects “a moderate recession to begin in the first quarter of 2023.”

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in 2024

A September CNBC survey of analysts, economists and fund managers shows that most believe inflation will move closer to the Fed’s 2% target by 2024.

If so, we would enjoy lower prices for groceries, consumer goods and the general cost of living. However, we will also experience high unemployment and a booming economy.

Once the Fed reaches its 2% inflation target, it will begin lowering interest rates to restore the economy.

It’s like driving your car in the middle of the desert until you run out of gas – and then hoping to find a gas (or electric) station to restart the engine and start again . This is how monetary policy should work.

These scenarios are based on the “correct” economic response to the Fed’s interest rate action. Of course, as our pandemic times prove: There are too many unknowns that can sabotage the best of plans.

What could have gone wrong? The Fed could stall the economy with higher interest rates but consumer costs could also be stuck – not low at all. it is called stagflation,

In other words, the Fed’s Powell may be looking for a ride to his next stop.

What does this mean for your financial decisions?

We do not live our lives according to a macroeconomic plan. We fall in love, have children, buy a house and find a new job, all at the behest of unknown forces. So the Fed will do its job — and you should do yours.

trying to make financial decisions There is a ticket to Missouri Bay, Michigan under optimal conditions. what can you do:

  • Don’t make the iffy financial situation worse, such as moving too much debt,

  • Understand that a good idea today will be a good idea tomorrow. hasty decisions Often done under false deadlines.

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