Inflation has been a challenge for quite some time now. Many consumers are struggling to pay for routine tasks such as filling up their gas tanks or buying groceries. Thus, people are increasingly concerned that we may enter a recession in 2023. This is a possibility, but it's not exactly guaranteed. Here is what you need to know about the Federal Reserve raising interest rates again.
The Federal Reserve Raised Interest Rates — Again
On Thursday, the Federal Reserve raised interest rates by half a percentage point in an effort to combat inflation. Fortunately, inflation is now running at its slowest annual rate in nearly one year.
Despite this, consumer prices have risen by no less than 7.1% over the last 12 months. Since March, the Fed has raised interest rates seven times.
This is not a good time to max out your credit card, buy a home, or purchase a car. Admittedly, these purchases are already quite high in today's environment. So, this added financial stressor is very hard on pocketbooks across America.
In 2022, consumers who buy used cars are being charged an average interest rate of 9.34%—up from 8.12% last year—and they are making the largest monthly payments ever.
The central bank is committed to bringing prices down, but this seems to be an uphill battle. Inflation remains high due to a myriad of factors, including supply and demand imbalances born from the pandemic, higher food and energy prices, and broader price pressures. On average, Fed policymakers expect their benchmark rate to reach 5.1% next year.
The Big Picture
Consumers are generally earning higher wages — this isn't exactly improving the situation.
On one hand, higher wages inherently benefit workers, but the broader picture is more complex: There are more jobs than people to fill those positions, making the market an unbalanced one.
In short, the U.S. economy has replaced all of the jobs lost during the pandemic. However, the amount of people working has not completely recovered. Additionally, a lot of individuals have retired, never to enter the workforce agai — for every element to balance out, the Fed is trying to decrease job demand.
To make matters worse, demand is decreasing in many key areas of the economy, such as real estate. Fewer people are purchasing homes because they are now inordinately expensive due to raised interest rates.
Inflation Has Slowed, but Only Slightly
While the vast majority of consumers are struggling to cope with prices at the pump and at the grocery store, it is likely heartening to note that inflation is steadily slowing, though this is occurring at a snail's pace — Gas prices are already much lower than were 18 months ago, for instance.
Fortunately, there has been a slight slowdown, easing stress for many households.
How to Cope With Inflation and Raised Interest Rates
Inflation is an added stressor for many across the country, but there are ways to cope with it. For instance, you might want to consider starting a side hustle to bring in a bit more cash, investing anything at all that's leftover in the stock market, and either starting an emergency fund or building one up.
Unfortunately, it looks as though we will be dealing with inflation for quite some time. In fact, we may even experience a recession in 2023.
As consumers, it's important not to spiral into dread, because there are plenty of ways to get around it — Namely, you can increase your streams of income in one way or another, making it easier to deal with the ridiculously high prices for everything from gas to hand soap. That said, gas prices have gone down — thankfully. Grocery prices are still a pain point though, unfortunately.
In short, it's generally most effective to stay ahead of the curve, prepare for the future, and find the silver lining in this rather dismal situation.