After one more interest rate hike, the Fed may hit the 'pause button'

After the most aggressive interest rate hikes in 40 years, the Federal Reserve is expected to approve another quarter-point increase, in its May meeting. 

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The central bank started raising rates 13 months ago, from zero to an anticipated 5.25%. 

It's been trying to make 'borrowing' more expensive, so consumers spend less, hiring slows, which is supposed to help push inflation down. 

There is a growing expectation this next hike could be the last, for a while, while the Fed gives the economy a chance to respond. 

Houston economist Sam Rines says a number of factors have kept inflation stubbornly high... prompting the fastest rise in rates, ever. 

"This has been a dramatic tightening of policy over a very short period of time," he says. 

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It's been having an effect. A government report that the Fed watches closely showed year-to-year price growth fell to 4.2%, last month, down from 7% a year ago. But companies are still hiring, and paying workers more, as a sign that demand continues. Rines is not convinced the Fed is done, just yet. 

"Are they going to continue on the path of quarter-point rate hikes, or are they going to allow themselves time to see how the economy is doing, see how inflation evolved, and whether they need to continue raising rates?" he wonders. 

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Inflation, and higher borrowing costs over the last year, have taken a significant bite out of household budgets. The nation's credit card debt neared a trillion dollars, by the end of 2022. 

The average balance, for Texans, sits at $8701 according to a Lending Tree analysis. Paying that off has gotten very expensive. The average credit card interest rate now sits at 20.09%, up from 14.56%, when the Fed started rising rates. The difference, while making just minimum payments, equals more than $18,000 in added interest fees. 

"If you're consuming on credit, in general, call it a two-sided hit that has really been painful," says Rines. "Until inflation comes down, that's not going away." 

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If the Fed signals that it's willing to let the economy simmer with rates as they are, there will also be an understanding that if inflation prices tick up or job growth gets hot, then more rate hikes will be coming. With the possibility of a recession still very real, there's no expectation that rates will go down before sometime in 2024.