How can the Fed decision to pause rate hikes affect your day-to-day?
For at least one month, interest rates will stay at their current levels after the Federal Reserve opted to pause further rate hikes this week. How can this impact you...
After fifteen months of consecutive rate increases, Federal Reserve Chair Jerome Powell announced that the Free Open Market Committee (FOMC) had voted to pause any further rate hikes for at least one month.
“Holding the target range steady at this meeting allows the Committee to assess additional information and its implications for monetary policy,” said Chair Powell, noting that the FOMC will use the pause to “take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.”
After the FOMC meeting on Wednesday, the group also released its updated economic projections. The index the Fed uses to calculate inflation is the Personal Consumption Expenditure (PCE), not the Consumer Price Index, which goes beyond purchases made by consumers but also those made on their behalf, like healthcare costs paid by employers.
Consumer Price Index vs. Personal Consumption Expenditure
| CPI (% increase) | PCE (% increase) | |
| January | +0.5 | +0.6 |
| February | +0.4 | +0.3 |
| March | +0.1 | +0.1 |
| April | +0.4 | +0.4 |
| May | +0.1 | N/A |
The PCE report for May has not been released yet. This week the Bureau of Labor Statistics reported a 0.1 percent increase in the Consumer Price Index. So far this year, the BLS has tracked a 1.5 percent increase in average prices—leaving very little room to meet this target in 2023. The PCE is not far behind (1.4 percent), and that is before the numbers for May are available. In 2023, the Committee expects inflation to land anywhere between 3 and 3.5 percent and that by next year the annualized rate will fall below the two percent goal.
How will the decision to pause impact you?
Likely this decision by the Fed will have very little most people.
The one group that may be impacted directly is those who are in the process of taking out a loan. For those who are in the process of purchasing a home and are in the market for a mortgage, the pause could prevent increases in interest rates applied to a 15-or-30-year mortgage is not likely to increase in the coming weeks.
However, if the Fed chooses to continue raising rates in July, those applied to loans are likely to rise once again.