Where Will Interest Rates Go Next Year?

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What's Happening Today

As we head into the holiday season, investors are feeling increasingly anxious about the possibility of a recession, and rising interest rates.

In a televised interview earlier today, New York Fed President John Williams stated the Federal Reserve will continue to "do what's necessary" in order to bring inflation in line with the central bank's goal. The Fed has a 2% inflation target, and with the annual rate of inflation at 7.1%, there is clearly a long way to go.

While the Federal Reserve raised rates by a more modest 50 basis points earlier this week, questions and fears still remain about the future path of rate hikes in 2023. Many economists and business leaders are predicting that the U.S. economy would enter a recession next year. That leaves investors concerned that the Fed might not be able to pull off a "soft landing"—in other words, a monetary slowdown that lowers inflation without tipping the economy into a recession.

Next week we'll get another indicator of how inflation is doing when the Personal Consumption Expenditures (PCE) Price Index is released. It's the Fed's preferred gauge of inflation, and could provide a glimpse into how stubbornly high inflation is holding on. If inflation slows more than expected, investors will likely breathe a sigh of relief thinking maybe the central bank will take it a little easier on all of us next year.

Stocks are falling today as investors continue to worry about the future of the U.S. economy after yesterday's retail sales report showed a bigger-than-expected slide in spending.

- Kristin

Editors' Picks

Federal Reserve Forecasts Higher Inflation Despite Recent CPI Data - Bloomberg (Bloomberg)

Why Recession Fears Are Back: Americans Are Losing Faith (CNN Business)

7 Ways to Recession-Proof Your Business (The Balance)

Americans Pessimistic About Prospects for the Economy in 2023, WSJ Poll Finds (The Wall Street Journal)

I Want to Invest—But How Much, and What Do I Buy? (The Balance)

Food Inflation is Cooling, but Double-Digit Percentage Increases Persist for These Items (MarketWatch)

The Dangers of Credit Card Debt and How to Avoid Them (The Balance)

Term of the Day

Credit Card Churning

Credit card churning involves frequently applying for new credit cards, not necessarily to use or even keep them but rather to take advantage of lucrative sign-up or welcome bonuses in the form of cash or rewards miles or points.

By opening many cards, you can rack up a significant number of miles or points or a hefty sum of cash back within a short period. As such, the strategy can be rewarding for savvy credit card users albeit risky for the average consumer. In recent years, credit card issuers have put practices in place that limit churning.

Off the Charts

The average credit card interest rate for purchases or annual percentage rate (APR) has climbed as the Federal Reserve raised interest rates to curb inflation. And if you're in the process of paying off credit card debt, remember that credit card interest compounds, meaning previous interest charges are included in each monthly interest calculation. As a result, card balances can grow quickly, and every APR percentage point matters. So if you fall behind on your monthly payments, those costs can rise even more under a much higher penalty APR.