What Interest Rate Hikes Mean For Your 2023 Financial Plan
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Here's your Money Briefing for Thursday, December 15th. I'm Danny Lewis for The Wall Street Journal, filling in for J.R. Whelan. 2022 has been a year of higher prices and rising interest rates aimed at tamping down inflation. The Federal Reserve has approved another interest rate hike, this time half a percent. And Chair Jerome Powell says the central bank will likely keep raising rates next year.
The historical record cautions strongly against prematurely loosening policy. We will stay the course until the job is done.
But what does this mean for your finances? After the break, our personal finance reporter, Julia Carpenter, joins us to discuss how to plan for 2023. Stick around.
We've been talking a lot about the Federal Reserve this year, especially how its attempts to cool down inflation by raising interest rates are affecting the stock market and your bank account. But now that Fed officials say they expect to keep raising rates into the new year, it's a good time to start thinking about financial plans for 2023. Joining us now to discuss is Wall Street Journal personal finance reporter Julia Carpenter. Hey, Julia.
Hey, thanks for having me.
So first of all, we've been hearing a lot about the Fed raising interest rates and its impact on Wall Street. But what do rising rates mean for everyday people who aren't stockbrokers or day traders?
You'll feel the effect of rising rates in pretty much every area of your financial life. You'll notice how it affects your credit card balance, how it affects, you know, mortgages if you're shopping for a house, how it affects car loans, all these different prices that people see in their everyday life.
How is the Fed's recent rate hike changing the 2023 financial outlook?
We're just a couple of weeks away from 2023. How should we be thinking about rate increases for our financial New Year's resolutions?
I talked to financial advisors and economists about this, and they all said the same thing, that people should be anticipating high rates to stay high for a while. So we're not going to wake up tomorrow and all of a sudden get an announcement from the Fed that rates have dropped back to what they were last year or they'll suddenly diminish overnight. People need to be thinking of their 2023 strategies with all of this in mind.
So if someone's been planning to take out a loan for a big purchase, like buying a house or a car, is it worth waiting for interest rates to go back down again?
A lot of people have found themselves in that spot. They've been looking at rates and thinking, well, I'll wait. They'll probably go down. Or I don't want to make this decision when rates are this high. But right now, if you're looking to buy something like a house or a car or another big purchase, rates are not going to just be back to 3% like they were last year. So speaking with financial advisors, they all said that If this is a big purchase that you have the room to make right now, you should be thinking of your own financial preparedness, not any sort of market timing. So if you have to pull the plug right now on this plan, you're not doing so because of the interest rate. You're doing so because of your wallet or some other sort of method in your finances.
Right. And people might be stretched thin financially as rates go up. Is it still worth socking money away in a savings account?
It's definitely worth it because that is actually a silver lining. When rates go up, we typically see higher rates on savings products. So people looking at high yield savings accounts, they'll see that those rates are higher.
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